Author: Paul A. Carl, CHSA, CPFA™ Vice President, Retirement Plan Consulting, Registered Representative
An organization requested a review and analysis of its 403(b) plan. The recordkeeping, administration, and investment services were bundled through a single provider. The organization’s goal was to add an independent advisor without increasing to the total cost of services. A complete evaluation of the plan and its operations was initiated. The result: The organization hired the advisory team performing the evaluation in a co-fiduciary capacity, stayed with their bundled provider, and managed to reduce overall plan costs by more than 20%. While not every scenario works out the way described above, it’s very important for retirement plan sponsors and fiduciaries to be fully aware of the services required to be rendered, the providers rendering those services, and the related fees.
Keep reading for the list and abbreviated description of each of the four most frequent service providers to participant-directed retirement plans:
- Recordkeeper – Receives and processes contributions, loan repayments and income. Issues payments for expenses, distributions, and withdrawals. Tracks all sources of contributions. Posts all transactions related to these activities. Usually provides a 24/7 websites (and mobile app) for plan sponsor and participant-level accesses where these parties can interact with the system and/or view detail around the account(s). May prepare only or prepare and issue some or all of the required participant notices. Offers a platform in conjunction with the movement of plan assets into, out of, and within the plan.
- Custodian – Holds the plan assets. May be directly affiliated with the recordkeeper or may be an independent third party.
- Third party administrator – Performs the compliance and administration required by regulations to effectively operate the plan. Tracks vesting and is the preparer of the annual report Form 5500. May prepare only and sometimes may prepare and distribute required participant notices. Often consults on plan design and provides updates on regulatory provisions affecting plan design.
- Investment advisor – Performs an analysis of the investments and reports periodically on that analysis. If acting in a co-fiduciary capacity, makes specific investment recommendations about the investments. If acting in a fiduciary capacity, takes appropriate and independent action on investments. Helps educate participants and beneficiaries.
Each of these providers work collectively to deliver services to the plan sponsor and plan participants. In some situations, the recordkeeper may also provide the administration and compliance services ordinarily rendered by the third party administrator (as in the example above).
The role of the plan sponsor is to monitor and periodically evaluate the services offered in conjunction with the services’ fees. Document the evaluation and act accordingly. There is no fiduciary obligation to simply chose any provider based on lowest cost. Most retirement-dedicated advisors can assist the plan sponsor with the evaluation process and help the plan sponsor make informed decisions on what’s best for the plan and its participants and beneficiaries.
Can you name your plan providers and their roles?
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