Vendor Monitoring: Going Beyond the Determination of Reasonableness

Posted on April 9, 2015

As a responsible plan fiduciary (RPF),  the Employee Retirement Income Security Act (ERISA) requires you  under Section 408(b)(2) to ensure that arrangements with your service providers are “reasonable” and that only “reasonable” compensation is paid for their services.  To ensure RPFs were provided the information they needed to make better decisions when selecting and monitoring service providers for their plan, the Employee Benefits Security Administration (EBSA) estimated that the final rule would cost approximately $207 million1.

Is it possible that so much cost and attention spent on determining reasonableness of your plan’s covered service providers has caused you to focus on this determination and overshadowed other important decisions that need to be made regarding your selection and monitoring of service providers?

Going beyond the determination of reasonableness of your service providers will further demonstrate your desire and efforts to act prudently and solely in the interest of your plan’s participants and beneficiaries.

Below are some questions you will want to ask your recordkeeper to help you make informed decisions about the services they provide to your plan:

  1. Where can I locate the most current recordkeeping service agreement? What are the consequences of terminating our agreement?
  2. Do you provide service guarantees? Service standards reports?
  3. Are you able to delineate fees for core recordkeeping, education, and investment reviews, even if all are provided under your bundled product?
  4. How often will you review your pricing for our plan?
  5. Will you provide the necessary disclosures that a RPF requires to meet its regulatory requirements to the plan? Will you proactively call to discuss the necessary steps I need to take to satisfy participant notice requirements?
  6. How many investment funds are available to our plan under this product? What types of income-oriented funds are available?
  7. Do you offer a zero revenue sharing platform? What are your capabilities in handling revenue sharing, if not?
  8. How will you help ensure the administrative requirements of the plan are met, and in a timely manner?
  9. What measures do you provide to determine the success of our plan?
  10. What methods are available to provide education to participants to improve participation, help them understand the benefits of their retirement plan, and ways to estimate the amount of income they can plan on during retirement, etc.?
  11. Will our plan be assigned a dedicated service team? What is the average number of years of experience of your Relationship Managers?
  12. Will you work with our plan’s advisor to provide information to help improve our plan?

Receiving and documenting answers to the above questions will help you go beyond the determination of reasonableness. It will enable you to evaluate other important aspects of the services being provided to your plan.

Vendor Services can facilitate a complete review of your service providers and the services being provided to your plan to help you meet your duties as a responsible plan fiduciary.  Contact our Vendor Services Team or call 417-889-4918 to learn more.

1http://www.dol.gov/ebsa/newsroom/fs408b2finalreg.html

 

PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.
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