6 Tips on Shopping for a Provider

My single memory of venturing out on Black Friday to shop came at the instigation of my “little” sister, who has long undertaken such forays. Nor was this to be a random shopping expedition — armed with circulars and coupons, she directed me and my two brothers with the fervor and furor of General Patton as to which stores we were to invade, the objective(s) of these intrusions, and in some cases, the line(s) in which we would take up residence while she pursued items she (apparently) did not trust to the pursuit of mere amateurs.

Shopping for a new provider is not something one would normally compare with a Black Friday foray, but if you have a plan sponsor — or plan sponsor prospect — who’s thinking about shopping for a new provider, here’s a list they may find useful.

Make a list — and yes, check it twice.

In an area fraught with as much potential complexity as searching for a retirement plan provider, it’s easy to think you’ll learn what you need to look for by simply going through the process. Though learn you will, shopping for a retirement plan provider without a sense of your core needs is a bit like going grocery shopping on an empty stomach; everything will sound good, and you’ll likely overload on “sweets.” Santa Claus makes a list — so should you: of plan design features (real and anticipated) that you want supported.

Know your pain points — and be ready to share them.

If you’ve had a plan in place before, you have almost certainly experienced at least one bump in the road, and perhaps several (and perhaps more than a mere “bump”). At the core of those experiences is something someone either did or didn’t do that contributed to the problem(s). Or maybe you simply have certain areas of sensitivity. Regardless, make sure you’ve detailed those, and be certain to share them with potential providers, preferably with a preface of “what procedures/protocols do you have in place to prevent something like….”

Have — and know — your budget.

These services aren’t free, though they may well be packaged in such a way that the plan sponsor doesn’t have to write a check. At a minimum. know how much you are able — and willing — to pay. And while you’re at it, you’d be well advised to be attentive to the cost(s) of the plan, who’s going to be pay them, and how those who provide services to the plan will be paid, and by whom.

Remember that provider rankings are only a starting point.

Think about it — an unknown number of plan sponsors about which you know nothing in terms of complexity of plan design, capabilities of staff or breadth of perspective/experience or tenure with the provider rate those provider capabilities, and from that a satisfaction score is gleaned.

It’s not a bad place to start — but like those rankings on Amazon, they have a limited value in predicting your satisfaction with that platform. They’ll likely affirm your preexisting preferences or fuel your imbedded concerns, but they aren’t much benefit in creating new ones.

Trust — but verify — references.

Proffered references are, almost by definition, going to be positive. (If they aren’t, and aren’t positioned as negative, that will tell you something valuable about the provider who provided them.) But having taken the time to request them, you shouldn’t assume that no value can be gleaned. Press for references that are like you in terms of plan size, design and complexity. Try to get someone who has converted to their platform in the past year — better still, someone who has left that platform in the past year (though it will likely be due to M&A activity, not service or fees). And ask them what questions they wished they had asked when they went through their process. If you ask them if they are satisfied, they’ll likely say they are. The question is, should they be? And will you be?

Get help.

Unless you are a serial provider shopper, odds are you aren’t an expert at the business of shopping for a provider. It is a complicated and time-consuming process, with an abundance of opportunities for disconnect in expectations simply because you don’t ask the right question(s). As an ERISA fiduciary, you are expected to review (and subsequently monitor) those that provide services to the plan with the skill and expertise of a prudent expert. If you lack that, you are expected to engage the services of someone who does.

Or else run the risk of winding up with a lump of coal.

- Nevin E. Adams, JD

Caveat Emptor

A couple of weeks ago my better half told me that she thought it was time that we traded in two of our aging vehicles – one a car that is too small for our family, the other a van that now seems too big for all but cross-country trips – for something in the middle. I was amenable to the idea – until she mentioned that she didn’t think we needed to buy a new vehicle as a replacement.

If you have ever in your life purchased a “pre-owned” anything, you’ll appreciate the dangers inherent in the principle of caveat emptor, literally “let the buyer beware.” That’s why, to this day, the notion of purchasing a used car practically causes me to break out in cold sweats. Not that lemons don’t roll off the new car lots every day – but there, at least, it seems that your odds are better – if not in terms of product, at least of obtaining satisfaction if something doesn’t work out.

Buying a used car is, of course, as much art as science – particularly if you aren’t mechanically inclined. That’s why it has become fairly common to enlist the support of a trusted mechanic to assess the reliability of a potential vehicle purchase. Of course that works only if you actually HAVE a trusted mechanic to rely on. In my experience, the only way – outside of a personal relationship - for a mechanic to have earned that trust is for you to have spent a lot of time at the garage (which, of course, may be why you are looking for a different vehicle in the first place).

Plan sponsors are increasingly looking for guidance on what constitutes reasonable, and – spurred by the flurry of recent 401(k) plan lawsuits, and the increasing level of scrutiny applied by regulators and lawmakers – have, logically, tended to be dominated by a focus on fees.

It’s hard to argue with the “clarity” of that focus, but what do you think would be the result if my used car purchase used cost as the only criteria? All things being equal, cost may be a perfectly adequate point of differentiation, but all things are seldom “equal”. When it comes to used cars, common sense dictates that a vehicle in better condition could well be worth more than an identical make and model that has been handled roughly. And we all know of “cheap” car purchases that have more than made up for that initial price differential in terms of subsequent trips to the repair shop.

Things are even more complicated with retirement plans, where plan design flaws are often obscured, and where subtle restrictions and operational limitations don’t appear until well after that finals presentation. Fortunately, ERISA doesn’t require “cheapest.” However, it does call for plan fiduciaries to make decisions that are solely in the best interests of plan participants and beneficiaries, to ensure that those decisions culminate in the selection of services (and fees for those services) that are “reasonable” – and to do so with the insights and perspective of an expert in such matters, or to enlist the support of those who are.

Failing that – “caveat emptor’.

Nevin E. Adams, JD

Deal or No Deal?

Deals like the one announced on Friday by The 401(k) Company, Nationwide, and Schwab are the kind of thing that gives advisers—and plan sponsors—heartburn. Not that one in particular, I should hasten to add—one could have the same queasiness about the recent Great-West/US Bank deal (see Great-West Sweeps Up More 401(k) Business), the sale of Southeastern Employee Benefit Services (see First Charter Lets Go of Recordkeeping Unit), or just about any structural change at a 401(k) recordkeeper.

The reasons for that angst are obvious, I would suspect. Change—even change for the better—is frequently disruptive to the human psyche. Most of us tend to drift into comfortable “ruts” of pattern, or perhaps habit—places where we know what to expect and, roughly anyway, when to expect it. And, at least in my experience, the more frazzled your existence, the more one pines for these oases of quiet and relative clarity.

There are few things more disruptive to the peace or clarity of a 401(k) plan than a switch in recordkeepers, even when the change is instigated by a regular, thoughtful, focused evaluation of the alternatives; or even when that change is the product of a desperate quest driven by a truly awful service relationship. But it is perhaps especially disruptive when the change is thrust on the plan by forces outside of its control or instigation. Particularly because, IMHO, that kind of change calls for at least a passing review of what the change means to the plan.

Some changes are less impactful than others on the plan’s daily administration, of course. Changes that trigger a mass departure of key staff can be upsetting, and those that necessitate moving to a new processing platform even more so. Change that requires communication to participants is anathema to most plan sponsors (and trust me, when a local provider engages in a big financial transaction, the media will cover it, and participants WILL ask).

On the other hand, changes that are merely structural in nature can be a big yawn—and changes that result in additional resources, better capabilities, a clearer focus, and a stronger commitment to “the business” are not as rare as you might think (though not as common as the post-announcement press releases would have you believe, either).

Regardless of whether the change appears to be good, bad, or inconsequential on its face, you need to ask—and get an answer to—the question “What does this mean to us?”

And the question only you can answer—“What are you going to do about it?”

- Nevin E. Adams