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Tips in the Selection Process of a 401K Service Provider

Every 401K sponsor out there, including you, knows how challenging it could be to find the best and most reliable 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. As a matter of fact, the services that 401K providers different from one another in so many aspects and angles. What this means is that one service provider might be ideal for you based on your needs while the others aren’t. The crucial point of it all for every 401K sponsor out there is to find and match the ideal services being offered to that of 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. What could happen then is that if you end up paying for excessive services for an expensive price, you might yourself having personal fiduciary liability as a 401K sponsor or you will drag down participant investment returns.

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. Once you’re sure with that, you can then determine which of the services will need professional assistance for them to be 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. As for investment management services meanwhile, they’re generally referred to as plan-level and participant-level services.

Next, you also must know that majority if not all 401K plans today actually resort to outsourcing their plan administration services to a professional service provider. The reason for this is because doing so will actually mean becoming more cost-effective. In other words, you really don’t want to get torn between hiring and not hiring because you need a professional plan administration provider, no questions asked.

Now when you’ve come to the decision to hire professional services and assuming you already have the specifics as to what your 401K plan really needs, you’re now ready to begin looking for those service providers. But don’t rely on hiring someone based on small talk. It’s quite obvious that you can’t settle for anything less than a comprehensive offer and make sure you get to ask your prospects about the certainty that they in fact can deliver the services you expect them to provide.

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