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Some Important Reminders Before You Select a 401K Service Provider
If you happen to be a 401K sponsor, one of the most difficult responsibilities you are to shoulder is finding a reliable and highly competent service provider. It’s not like you’re simply searching for a plumber to fix your leaking pipes where you expect all of your prospects have the same set of skills and expertise. In fact, the services you expect to get from 401K providers significantly and quite expectedly will differ from one company to the other. What this means is that one service provider might be ideal for you based on your needs while the others aren’t. The most important consideration is for a 401K sponsor like you to try so hard to search and match the ideal services with respect to plan needs.
First things first, you need to be wary of what short of services you wish to avail because there have been countless instances in which small and medium-sized business 401k plans paid for services that participants actually did not have use for. So what really could happen in the event that you decided to pay for services you don’t need and for an excessive amount is that you may be creating a personal fiduciary liability upon yourself as a sponsor.
And taking this into consideration, you have to first have a full understanding of the services that compose the 401K plan if you are to sponsor one. After you’ve done your homework, it’s time to figure out which of them services will actually need professional assistance in order for them to be successfully delivered.
When it comes to understanding specific 401K services, it is imperative for you to acknowledge the fact that every single type of 401K plan is in need of multiple services to succeed. These services are generally classified into two: plan administration and investment management. Plan administration usually includes but not limited to recordkeeping, custody, and third-party administration. On the other hand, investment management services will include plan-level as well as participant-level services.
At this point, you also will have to understand and recognize the fact that practically all 401K plans nowadays lean towards outsourcing plan administration services to a professional service provider. The biggest reason why outsourcing is favored because it is a lot more cost-effective. So in essence, there’s really no doubt how imperative and important it is so hire a professional plan administration provider.
So once you finally determine what services your 401K plan really needs and if you’ve reached the decision to hire professional services, there’s no more reason to delay the search for those service providers. But you can’t just hire anyone who impresses you at first talk. Obviously, you want them to make the best pitch and once they do, ask them directly if they indeed are capable of delivering the services you need from them.
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