I’ve discovered over the years that many retirement plan sponsors are failing to ask some essential questions when doing a review of their plans and/or vendors.  I’ve been thinking about this quite a bit as I begin my preparations for the opening of the September Mid-Sized Retirement and Healthcare Plan Management Conference in Las Vegas (our last program in 2014.)

As I’ve mulled this over, I’ve realized that more often than not this is simply because they just don’t have the knowledge to ask those questions.   It’s one of the big challenges we face as educators.  It’s what you “don’t know you don’t know” that can really hurt.  And if you “don’t know you don’t know” something, you are unaware you need to have knowledge on the subject.

The results:

1)     Fundamental mistakes in the design or administration of benefit programs that often could be easily remedied.

2)     Plans that are not providing the level of benefits to participants that the sponsor has intended.

There is a lot to know about retirement and healthcare plans.  Plan sponsors are required to know it all.  Like anything in life, if you don’t know what you’re buying in a plan, then you won’t know what you’re getting!

Here’s a real life example of how bad things can be when someone doesn’t ask the questions of a service provider that they really need to be asking:

A couple of years ago, I was having lunch in Atlanta with someone who was (emphasis on the word “was”) the CFO of a company with a couple hundred employees. He was concerned that the plan had very poor participation.  He had no idea that retirement providers typically provide communication programs to educate employees on the benefits of participating.  (This company’s provider, a local bank, had never given any educational materials.)  The company had never heard of automatic enrollment for retirement plans.  My friend also told me that they had four investment choices, and the most popular was an index fund—a fund that had 80 basis points in fees!  Then the real eye opening experience occurred.  He told me that the company wouldn’t consider another provider because “the bank that provides our plan is our biggest client.  We have to have our retirement plan with them.”  And to boot, the company’s CEO plays golf with the bank’s CEO every month.  Since he was likely a fiduciary of his company’s plan (given he was the CFO and on the retirement plan committee), I figured I might mention something about personal liability he might face. (OK, I’m not always this gloomy at lunch!)

The fact is, this CFO had no idea that his plan had problems.  He didn’t intend to run a plan that was way out of compliance, but that’s what happened.  And it would have been so easy to fix if he had just known what to ask.  (You should have seen his reaction when I started explaining prohibited transactions!)

With that in mind, I wanted to share five questions that any retirement plan sponsor should ask retirement plan vendors.  There are many more, but I thought I’d pick some biggies that everyone should be asking. These are all critical in understanding the role your service providers will have.

1. What level of fiduciary responsibility does the vendor assume, and will the firm acknowledge fiduciary responsibility in writing? 

It’s also a good idea to see what limitations, if any, there are to that responsibility/liability. This is particularly important if the plan sponsor is ever sued by participants or investigated/audited by the DOL or IRS.  If there is ever a claim, do they have the ability to pay?  (Make sure you review their insurance!)  If the provider says that they will take on all the fiduciary responsibility and you as the company will have none—run away!  They are likely misleading you.  Companies always have some level of fiduciary responsibility, regardless of what a vendor may claim.  (This is discussed in detail at our full day pre-conference fiduciary sessions we hold at each of our programs.)

2. Can the vendor help me understand my role as a fiduciary?

Does the vendor provide information or education aimed at making the plan sponsor better informed about their fiduciary responsibilities and also keep the plan sponsor informed as fiduciary responsibilities change?  (Remember, as I mentioned above, regardless of who your provider is, your company as the plan sponsor will still maintain its share of the fiduciary requirements.)

3. What, specifically, are the services the vendor will provide with respect to:

  • Required federal filings, such as non-discrimination testing, filing the annual 5500 form, fee disclosure, plan amendments?  (Yes, it’s the plan sponsor’s responsibility to make sure these are filed!)
  • Customer service at the plan and participant level?
  • Communication/education services at the participant level—are they customized to my plan or more general in nature?
  • Evaluating the performance of my plan?  How will you give me suggestions to improve my plan, and how will those get implemented?
  • Keeping me informed about changes in federal law or regulations?

4. Will the vendor provide me with a dedicated account representative who will understand both the needs of our company and the details of our plan?

5. Will the vendor (usually a consultant in this case) help me interpret and analyze the fee disclosures provided by all of the plan’s vendors?  (Hint—these disclosures are now required by law.)

Here’s a bonus piece of advice: It’s important to get written clarification from each of your vendors about the specific services they will provide. In addition, determine how they will work together and what their past working relationships have been. You’ll want to see evidence of a positive working relationship, free of conflicts of interest and points of contention.  (This may not be applicable if you choose a “bundled” plan provider, where there really is only a single vendor point of contact.)  Make sure you read all the fine print in your agreements!

I’ll leave you with one last quick story. I talk to folks all the time about their benefits programs. Like Uncle Jerry who sells life insurance, this doesn’t always make me the life of the party.  I often hear things that people should know about running their plan that they just have no idea might lead to—or already be–a problem, such as occurred in the example above. Invariably, I end up inviting them to one of our conferences.

I bring this up because I want to extend the same invitation to you. Come attend a Mid-Sized Retirement and Healthcare Plan Management Conference.  These programs are a great way to get educated regarding your responsibilities as an administrator of a health or retirement program, so you don’t get caught “not knowing what you don’t know.”

There’s only one program remaining in 2014: Caesars Palace in Las Vegas from September 7-10.  I promise that the knowledge and education you gain there will have long-lasting value for you and your participants.

One last note:  Don’t miss out on the early registration discounts, which expire soon.

Hope to see you in Vegas!

Mark