Benchmarking Service Providers

According to the Department of Labor: “ERISA requires employers to follow certain rules in managing 401(k) plans. Employers are held to a high standard of care and diligence and must discharge their duties solely in the interest of the plan participants and their beneficiaries. Among other things, this means that employers must:

• Establish a prudent process for selecting investment alternatives and service providers;
• Ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided;
• Select investment alternatives that are prudent and adequately diversified; and
• Monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices.”

DOL investigations frequently focus on the process employers follow to demonstrate compliance with these requirements. When a sponsor has recently conducted a formal RFP, documenting compliance may be relatively straightforward. But when the same funds and vendors have been in place for several years, the sponsor must demonstrate how they monitor funds, fees and services. We’ll describe how a rigorous, innovative benchmarking process can help document fiduciary compliance, improve plan performance, and facilitate participants’ retirement readiness.