Top 5 Tips – Choosing a 401k Plan Provider

By • on September 6, 2011 • Filed under: Articles of Interest, How-Tos, Plan Sponsors

Choosing a 401k plan

It’s that time of year when employers re-evaluate existing pension plans, comparing value and performance, looking for ways to save money. With the recent fee disclosure rules put in place by the U.S Deptartment of Labor requiring greater fee disclosure to participants, many companies may be shopping for a new plan. Researching a 401k plan can be an arduous task. Here are the top 5 tips for selecting a 401k plan.

1. Know Your 401k Plan Provider

a. Single-Mutual-Fund-Family Provider (Broker-Sold Plans)

No single mutual fund family has the best fund for each sector. In a 401k plan, a particular fund family may offer an outstanding large-cap fund, but a poor small-cap fun, or no funds in sectors that perform well under certain market conditions, such as technology, energy, emerging markets, precious metals, etc.

b. Insurance Companies

Mirrored funds, annuity expenses, contracts with large termination costs — Insurance companies are notorious for burying fees within their funds and contracts.

Recommendation – Choose a platform that offers no-load funds and allows you to select the best funds across a universe of multiple fund families.

2. Choose a Full-Disclosure 401k Plan Provider

Choose a fee-only investment advisory firm. A firm that receives no commission or revenue-sharing from any of the mutual fund companies. What this does is eliminate any conflicts of interest that plague most insurance companies and broker-sold 401(k) plans.

Recommendation – Ask for a fee disclosure addendum.

3. Provide Your Employees Access to a Registered 401k Plan Investment Adviser

An oft-overlooked aspect of the 401(k) selection process is insuring that your employees have qualified professionals available to provide advice relating to retirement accounts including how much to save and what to invest in.  Not only that, having an SEC-Registered Investment Advisory Firm attached to your retirement plan reduces your fiduciary liability, as the firm assumes fiduciary liability upon providing advice to the participants.

4. Offer Plan Participants Access to Managed Account Services

Look for a plan that provides Managed Account services to your employees. This greatly increases the likelihood that they will participate in the plan, which helps you, as the employer, when it comes time to perform the annual discrimination testing. Handing a list of 10-50 mutual funds to employees and asking them to select the proper funds & allocations can be an overwhelming task for most, particularly without an investment adviser for the participant to turn to with any questions.

5. Select a Point-of-Contact Service Team

Look for a 401k plan that implements a point-of-contact support team for you and your employees. It helps to be involved with the same representatives that helped you design your 401k plan, they will be there for support throughout the life of your plan. Not only is the team there to help you with the technical aspects of your 401k plan (ranging from document design, insuring compliance aspects are met, optimizing your 401k plan for annual discrimination tests), the team is also designed to provide support for your employees.

Articles on this site are for guidance only. No intention, however phrased, to offer investment recommendations or tax advice is intended, should be inferred, or acted upon by the reader without due diligence. No guarantee of the accuracy of the content is given or inferred. It is our recommendation and the responsibility of readers that they make their own further independent investigations before making any investment decisions.

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