Changing Plan Service Providers? What You Need to Document…

Nathan Bender CRPS™ |

If you’re looking to possibly change any of the service providers on your company 401(k) plan, there are a few things you need to document to meet the guidelines outlined in the Employee Retirement Income Security Act (ERISA). 

One of the key responsibilities plan sponsors and fiduciaries have is to demonstrate prudence and that a prudent decision-making process was undertaken in the management of your plan, and this applies to being able to demonstrate the reasons behind any decisions made when it comes to who you hire to help service the plan.

Reasons for Changing Providers

Most employer-sponsored retirement plans don’t change service providers very often. But there are some key events or reasons that might make changing providers necessary. For example:

  • The company gets bought out and when combining plans, finds the current providers aren’t the best fit for a larger plan size
  • A benchmarking analysis of the plan reveals gaps or issues (excessive fees, services not being used but paid for, new services needed, etc.)
  • An advisor leaves the industry and a new advisor must be hired to help with the plan
  • Problems or complaints with a current provider
  • Plan design changes not available with the current bundled arrangement, etc.


Best Practices for Documenting Provider Changes

One of the best ways to demonstrate a prudent process that was followed in the hiring of plan service providers is to document, document, document. Everything. 

When researching, reviewing, and comparing new options for plan service providers, some things you’ll want to document include:

  • The reasons you’re changing providers and the old provider is no longer a good fit
  • The goals you have (what you’re looking for specifically) in a new provider 
  • The search criteria you use and the method for finding a new provider (research, RFP, etc.)
  • The hiring / interview process and selection criteria for choosing a new provider
  • Why you choose a specific provider
  • Finally – the legal documents (contract, etc.) are reviewed and signed during the hiring process


Reviewing Plan Service Providers

Once you’ve hired a service provider, your due diligence doesn’t end there. 

It’s important to regularly review:

  • Plan service contracts to ensure the fees discussed are what’s charged, the services offered are being utilized, etc.
  • Identify if any services can be removed or new ones added
  • Review participant complaints and the resolution on those (if applicable
  • Review if industry changes require a renegotiation of the contract, etc.

Next Steps

If you haven’t documented the process you used to hire your current service providers, it’s not too late.

  • Start now - create a compliance file and ensure you have a service provider selection folder that documents the process you followed when hiring your current providers.
  • Start an ongoing review process and regularly review service contracts (annually is ideal, but at least every 3 years).
  • If you’re looking to change providers now, be sure to implement a process for documenting the provider selection decisions.

And if you haven’t reviewed your plan provider contracts against the fees charged and services offered in the last three years, contact us and we’d be happy to send you a copy of the provider review checklist we give our clients to help them document a prudent process for monitoring plan service providers.