"It was the consensus of our committee members that Take Control with Your 401(k) has a very clearly written section on every important 401(k) topic...so we bought a copy for everyone!" Dennis Buster, Everett Charles Technologies, Inc.
David L. Wray's book,
Take Control with Your 401(k) has been revised to reflect the changes that have occurred since the book was originally published in 2002.
Take Control with Your 401(k) is available for $13 ($5 for PSCA members). |
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Choosing a Service Provider
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- Consider the service or expertise necessary for proper administration of your plan. Does this service provider propose to provide the special considerations needed for your plan?
- Checklist for objective qualifications:
- size of staff (be sure to identify individual(s) who will be handling your account)
- professional certifications and/or registrations
- relevant training and experience
- performance record
- references
- technical capabilities
- financial condition and capitalization
- insurance/bonding
- litigation
- termination by other clients and reasons
- Compare fees to industry standards taking into account the services to be performed, the providers qualifications and the service provider's responsibility.
- Have a written agreement documenting the services to be performed and the related costs.
- Does your plan have a conflict of interest policy that governs business and personal relationships between fiduciaries and service providers and among service providers? Does your plan require disclosure of relationships, compensation and gifts between fiduciaries and service providers and among service providers?
- Your plan should have a Statement of Investment Policy that addresses the following:
- Evaluation of the specific needs of the plan and its participants
- Statement of investment objectives and goals
- Standards of investment benchmarks
- Classes of investments authorized
- Styles of investments authorized
- Diversification of portfolio among classes of investment, among investment styles and within classes of investment
- Restrictions on investments
- Directed brokerage
- Proxy voting
- Standards for reports by investment managers and investment consultants on performance, commission activity, turnover, proxy voting, compliance with investment guidelines.
- Policies and procedures for hiring an investment manager
- Disclosure of actual and potential conflicts of interest
- Clearly define the position to be filled by the investment manager and ensure consistency with the Statement of Investment Policy.
- Investigate the investment manager's performance record and the risks involved with the mangers style and strategy. How does the investment manager fit into the portfolio as a whole?
- Review how the investment manager measures and reports performance. Does the process ensure objective reporting?
- Establish the process to comply with the prohibited transactions provisions of ERISA.
- Insure the investment manager's process is in compliance with your plan's investment policy and guidelines.
- Review the investment manager's record with respect to turnover of personnel.
- Look for consistency in the manager's investment style.
- Investigate any terminations by the plan clients within a relevant time period.
- Look for any recent change in ownership of the investment manager and how it may affect the ability of the manager to perform the services needed by your plan.
- As for the investment manager's fees, look for reasonability with industry standards for the type and size of your portfolio. Does the fee structure encourage undue risk taking by the investment manager?
- If a personal or business relationship exists with any plan fiduciaries, how does it impact the evaluation of the objective qualifications of the investment manager?
- If your plan has a directed brokerage arrangement with a broker affiliated with your plan's investment consultant, how does the investment manager determine when to use your broker? What are the per share transaction costs?
- Does the investment manager have insurance which would permit recovery by the plan in the event of a breach of fiduciary duty by the investment manager? What is the amount of the insurance? Who is the insurance carrier?
- Define the role of the Investment Consultant. State the Investment Consultant's duties in the Statement of Investment Policy and/or the contract with the Investment Consultant.
- Consider the following responsibilities for the Investment Consultant:
- Monitor an advise concerning asset allocation
- Monitor and advise concerning riskiness of investment strategies, styles and individual investment managers
- Monitor and advise concerning the performance and riskiness of investments under the direct investment control of the fiduciaries
- Monitor and advise concerning the compliance of the investment managers and direct investments with the Statement of Investment Policy
- Retain, in writing, the fiduciary responsibilities of the services your investment consultant performs.
- As for the investment consultant's fees, look for reasonability with industry standards for the services to be performed and the amount of fiduciary responsibility.
- Evaluate the investment consultant's performance measurement process and techniques.
- If a personal or business relationship exists with any of the plan fiduciaries, how does it impact the evaluation of the consultant's recommendation of the investment manager?
- What investment managers are recommended by the investment consultant in recent searches for other clients?
- Does the investment consultant have insurance which would permit recovery by the plan in the event of a breach of fiduciary duty by the investment consultant? What is the amount of the insurance? Who is the insurance carrier?
- Look for long term financial stability and commitment to the defined contribution industry.
- Review the bundled service provider's track record for delivering accurate and timely record keeping, and other administrative services, and insuring regulatory compliance.
- Consider the range of investment options available to allow participants to make appropriate asset allocation decisions and achieve their investment objectives.
- Has the bundled service provider demonstrated the ability to generate superior investment performance over time?
- Evaluate the administrative capability to provide assistance with employee enrollment, investment education and ongoing plan communication materials.
- Consider staffing requirements for knowledgeable and dependable service representatives available to consult your plan participants.
- Do you have written disclosure of the expenses and commissions, if any, that the bundled service provider will receive?
- As for the bundled service provider's fees, look for reasonability with industry standards for the services to be performed and the fiduciary responsibility.
- Establish procedures to assure that any mistakes that may be made by the bundled service provider will be disclosed and corrected.
- Has the bundled service provider disclosed, in writing, the capacity in which it is acting?
- Beware of any conflicts of interest.
- Define the process in monitoring the service provider and who is responsible.
- Walk through written reports and determine the frequency in which you need them.
- Are the reports consistent with the contract?
- Do the written reports provide sufficient information to evaluate performance when compared to benchmarks of the industry?
- Establish a process to either (a) correct any non-conformance with guidelines/contract, benchmarks or industry standards; or (b) to terminate the service provider and retain a successor.
- If the responsibility to monitor the service provider has been delegated, have the individual(s) acknowledge the accepted fiduciary responsibility in writing.
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