Hiring a service provider in and of itself is a fiduciary function. When considering prospective service providers, provide each of them with complete and identical information about the plan and what services you are looking for so that you can make a meaningful comparison.
For a service contract or arrangement to be reasonable, service providers must provide certain information to you about the services they will provide to your plan and all of the compensation they will receive. This information will assist you in understanding the services, assessing the reasonableness of the compensation (direct and indirect), and determining any conflicts of interest that may impact the service provider’s performance.
Some additional items a fiduciary needs to consider when selecting a service provider include:
- Information about the firm itself: financial condition and experience with retirement plans of similar size and complexity.
- Information about the quality of the firm’s services: the identity, experience, and qualifications of professionals who will be handling the plan’s account; any recent litigation or enforcement action that has been taken against the firm and the firm’s experience or performance record.
- A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled, and whether the firm has fiduciary liability insurance.
An employer should document its selection and monitoring processes, and, when using an internal administrative committee, educate committee members on their roles and responsibilities.
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