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Changing 401k Plan Vendors? There is No Such Thing as Too Many Questions

Recently Ed Moss, Senior Vice President, Employee Benefits at FirstMerit Corporation (www.firstmerit.com) provided some tips for plan sponsors who are considering changing 401k plan vendors.

According to Moss, moving a plan is more complicated than most plan sponsors realize. "As a sponsor, a never-ending learning process accompanies the world of 401k plans -- the more so if it has been many years since you last made a provider selection," says Moss. "The more questions you ask now, the more confident you'll be that you've chosen a provider who will be a partner in ensuring your employees' secure future."

Moss suggests the key areas on which to focus your evaluation:

Service. Account representative expertise and plan provider support is crucial to a mutually beneficial relationship.

  • Is your representative located in the same community or five states away? Remember such services-after-the-sale as participant education are easier to arrange locally.
  • If there is a call center, what are its hours? How much information does the call center have about your account?
  • Is the provider's Web support equal to or better than what you're accustomed to in user-friendliness?
  • Are participant statements and management reports user friendly and schedules for issuing them appropriate to your needs?
  • How often are loan checks and retirement distributions issued?
  • How quickly are contributions or investment transfers recorded?

Compatibility. Request references for plan sponsors of similar plan sizes and styles who have had both positive and negative experiences with the provider. Not all providers are suited for a small or start-up plan where the sponsor may need more handholding and service involvement, just as not all are suited for a complex plan with multi-million dollar account balances.

Fees. "In determining what fee structure you can live with, keep in mind your preferred ratio of employer-paid costs to costs paid out of participants' accounts," says Moss. "Know, too, that plan providers can get paid in ways that shift costs away from the sponsor and participants." Fees cover expenses for maintaining shareholder records, providing regular financial statements, administering custodial and accounting services, and for management fees internal to a given mutual fund. They may be calculated on the basis of plan assets, eligible participants, the execution of certain transactions, or fixed charges.

Compliance. "Filing Form 5500 with the IRS, reporting on distributions to be made from the plan, and conducting the very complex nondiscrimination testing to insure that your plan doesn't benefit highly compensated employees more than the rest of the workforce all need to be someone's designated responsibility," says Moss. Confirm that this service is built into the base charges of a new plan; if there will be additional charges, you may want your accountant or legal counsel to handle it.

Blackout periods. Balancing accounts takes time. What interval that turns out to be hinges on how quickly the outgoing provider can get its successor the records, then the ability of the new provider to load data into its system, cross check it and disseminate information to the sponsor and participants. "It's entirely within your rights to push hard with any provider to give you a realistic estimate of the blackout period and what happens to account balances during it," says Moss.

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