things are great on the "spur of the moment." Other things are better
accomplished with planning and forethought, like choosing a new
administrator for your 401(k) plan. Invest more time on preparation, and
you'll spend less time fixing problems. If your company is looking to
change 401(k) administrators or investment managers, first ask yourself
Where are we now, and where do we want to be? Make
a list of everything that's right about your current administration and
everything that's wrong with it. Are the fees too high? Do they take
too long to pay out terminated participants? Do you receive many
Who will participate on our search team? Determine
which departments will be represented. Human resources, HRIS, finance,
and payroll should all have a place at the table, and there may be
others in your organization. You might consider including a consultant
on the committee. Consultants can offer a broader range of expertise,
but their fees may be a factor in your decision.
From which vendors will we request proposals? You
can locate potential vendors from peers at other companies,
professional organizations, trade journals, Web sites, and
advertisements in service-provider directories, in print, or on the Web
(see sidebar). Make sure your mailing list of potential vendors includes
correct names, titles, and mailing addresses. If any of these are
incorrect, it could cost you in terms of time.
When these questions have been answered, develop the
Request for Proposal (RFP). At a conference sponsored by the Society for
Human Resource Management, it was suggested that the following be
included in the RFP, some in every proposal; some may not be necessary in every case.
A cover letter, in which you provide an estimated timetable for the selection process and the conversion.
A profile of the vendor's organization.
How investments and the interactions with the trustee will be approached.
What system, hardware, and voice response systems they use.
Details about participant transactions, participant statements, and reports to management.
Vendor's fees, number of clients, and references.
A profile of your company and the plan.
A list of what your administration must include and a "wish list."
Shopping for a new 401(k) plan administrator can
be a complex process. If you have prepared your RFP in an organized and
thoughtful manner, you can more easily evaluate the responses.
Here are some ideas to help you make sense of the
pile of proposals you will receive and to choose the administrator that
will work best in your situation.
To conduct a thorough review of the proposals, it helps to organize responses in an objective way. Try this:
Determine your most important objectives and considerations; then rank them in order of importance.
Using a matrix, compare each vendor's proposal with your list and score them against each other.
Review each proposal for the following information
that should be included in the proposal. Remember, if the vendor doesn't
produce a thoughtful, well-organized proposal, you can consider it a
sign that they are inexperienced, uninterested, or both.
The Profit Sharing/401(k) Council of America
recommends exploring the staff size, performance record, technical
capabilities, financial condition and capitalization, insurance/bonding,
and litigation record for each vendor. Be sure you know which
individuals will be responsible for your account. Find out about their
training, certifications, and qualifications.
Of course, once you narrow the field, you'll want to
do an on-site visit. Expect a dog-and-pony show, but don't be so "wowed"
by the presentation that you neglect to check the more mundane details.
Beware of vendors who claim they can meet your every need without
researching complicated requests. Find out particulars: How will they
handle your special circumstances? Always get the details in writing.
Ask for and check references for each finalist.
References should include a client that is about the size of your
company, one that is in the same industry (if possible), and a client
that was recently lost. In the current environment of turnover among
vendors (see the sidebar), it should not be too difficult for the vendor
to supply the name of a former client who has moved on.
Next, compare fee structures. Some vendors charge a
fixed-dollar amount per year, some charge on a per capita basis, and
some charge based on a percentage of assets.
Last, make sure the vendor you choose includes all
the details of your agreement in a written document signed by all
parties. The document should include the fee structure and any special
circumstances pertaining to your plan.
With the process so organized, the right vendor for
your needs should rise to the top. Enjoy your new association, but don't
get too attached. Statistically, you probably be doing it all over
again in a few years!