- ERISA Fiduciary Advisor
Is hiring a service provider a fiduciary function, and if so, what do I need to do?
Hiring a service provider is in and of itself a fiduciary function. An employer should document its selection and monitoring process. When considering which service provider to hire, the employer should provide each with complete and identical information about the plan and what services it is requesting so that the employer can make a meaningful comparison.
An employer should ask each provider for:
- Information about the firm itself, including
- financial condition, and
- experience with retirement plans of similar size and complexity.
- Information about the quality of the firm's services, including
- the identity, experience, and qualifications of professionals who will be handling the plan's account,
- any recent litigation or enforcement action taken against the firm, and
- the firm's experience or performance record.
- A description of business practices, including
- how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled,
- the proposed fee structure; and
- whether the firm has fiduciary liability insurance.
- Fees (discussed in detail below).
If the employer uses an internal administrative committee, it should educate committee members on their roles and responsibilities.
Monitoring a service provider
Fiduciaries are also required to monitor the service provider. An employer should establish and follow a formal review process at reasonable intervals to decide whether to continue using the current service providers or look for replacements.
When monitoring service providers, the employer should:
- Review the service providers' performance;
- Read any reports they provide;
- Check actual fees charged;
- Ask about policies and practices, such as trading, investment turnover, and proxy voting; and
- Follow up on participant complaints.
Additional resources that may be useful in hiring and monitoring a service provider include:
- Selecting An Auditor For Your Employee Benefit Plan
- Selecting And Monitoring Pension Consultants - Tips For Plan Fiduciaries
- Tips For Selecting And Monitoring Service Providers For Your Employee Benefit Plan
- 401(k) Plan Fees Disclosure Tool