Small businesses need a competitive benefits package to recruit top talent, including the best possible 401(k) your company can offer. So you put one in place. But after a few years, you’ve realized it may not be the right plan.
Maybe it’s the high fees, the lack of support and customer service, or poor financial performance that is making you re-evaluate your choice of a 401(k) provider. If you’re considering making a change, here are some tips that will help you evaluate your current provider and put a new plan in place if you decide to switch providers.
Evaluate Your Current 401(k) Provider
The first step is to consider the pros and cons of your current provider. Evaluate and rate them based on several factors:
Are recordkeeping, administration, and management fees reasonable when compared to other providers of a similar size? Complex fee structures can make it difficult to identify specific costs. Understanding a provider’s fees is an area where it’s worth your time to dig into the details.
When it comes to investments, especially those for retirement, financial advisors focus on the long-term. Market volatility happens. But that shouldn’t let your provider off the hook. When you’re analyzing whether they are the right fit for your business, be sure you know what their investment strategy is.
The level of service for employees
Is the provider responsive? Do they have a reliable level of expertise? Are plan participants able to get the account help they need? Do they offer ongoing onboarding of new employees? Conduct education meetings convenient for your employees? Advice about their investments? Are their online tools easy to use and accessible? This is usually directly correlated to employee participation rates. You don’t want to pay for something that your employees don’t even want to use.
The level of service for administrators
How much administrative work and time are going into managing your company’s 401(k)? Is the provider proactive and communicative? Do they provide support for compliance issues? Can you trust the accuracy of their data and punctuality around deadlines and pay periods?
Are your needs being met when it comes to IRS reporting, distribution reporting, and plan records reporting? Did your provider explain to you about Form 5500? Are they in good standing with regulatory agencies? Are they a fiduciary?
Planning To Switch Providers
You can do this on your own by sending out a Request for Proposal (RFP) to other providers. The idea behind the RFP is to gather as much information as possible from interested providers. You can use this information to answer important questions around the following:
- Fiduciary Responsibilities
- Participant Access
While it can take some time to find new providers and then review what their plan offers, it’s important to take the process seriously—you have a fiduciary responsibility to your plan participants, and skipping steps can cause serious problems later.
Hiring a Certified Plan Fiduciary Advisor (CPFA) can make this process easier! A CPFA can benchmark your plan and then help with RFPs and/or RFIs. A good, responsive CPFA can assist in plan design, choosing the right providers, help in managing fiduciary obligations, reporting, monitoring participation levels and performance, educating employees, etc.
The Implementation Process:
Once you determine your new provider, it will take some behind-the-scenes administration as well as a holding window to facilitate and implement the switch to a new 401(k) plan. Hiring a Certified Plan Fiduciary Advisor can help you through the transition process. You can expect at the very least:
- A review of the previous plan
- Preparation and testing to confirm data transfer between providers (e.g., participant plan balances, loan information)
- Communication to employees about the who, what, when, and why of the new plan
- Updates to legal and recordkeeping documents indicating the new investment provider
- A holding window while the previous provider runs final participant data
- Issuance of final statements from former 401(k) provider
- Creation and activation of new participant accounts
While it may take some time and effort to review your current plan and then change it; but if you’re not happy with your 401(k) provider, there’s no reason to stick with it. Now, more than ever before, small and medium-size businesses have a variety of options when it comes to 401(k) providers.
Cappuccino Financial Retirement Solutions can help you with the complex challenges posed by employer-sponsored retirement plans. We help make the process easier and support your employees in pursuing their retirement goals. We will work with you to find the right record keepers and investments, provide plan design assistance, assist/share in ERISA compliance and fiduciary responsibilities and drive participant success with onboarding new employees, on-going education and employee engagement strategies.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situations. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. For Plan Sponsor use only – not for use with participants or the general public. #1-5107605
Joseph Cappuccino is a registered representative with, and securities and advisory services offered through LPL Financial. A Registered Investment Advisor. Member of FINRA/SIPC.