Have you ever known anyone who requested the cheapest brain surgeon? Probably not. And while it wouldn’t be fair to compare choosing a plan provider with a life-or-death situation, choosing well is vital. Too often, companies make a decision based in part or in full on price … and there are a lot of reasons to dig deeper:
Expertise: See above about the brain surgeon. There is some truth to the axiom, “You get what you pay for,” and it definitely applies to your plan provider. The right experience and expertise can have very tangible results in that experienced providers will likely have a more sophisticated array of plan options and can help you avoid leaving money on the table by reducing your tax burden.
Liability: Certain providers of ERISA fiduciary services are willing to shoulder more of the liability associated with the administration of a retirement plan. That means you take on less of the responsibility, and the equation is very simple: a provider willing to take on more of the burden will generally cost more, period.
The Fee-Disclosure Conundrum: Before fee disclosure regulations were implemented, many companies found that their actual costs wound up being much higher than anticipated, thanks to indirect compensation and other hidden charges. The good news is that it’s now easier to compare costs from one provider to another with confidence. However, that state of affairs makes it even more tempting to choose based on price alone, which for all the other reasons listed here is just a bad idea.
Be Reasonable: The plan fiduciary has a responsibility to pay “reasonable” plan expenses. Often that term is interpreted to mean “lower” expenses, and in some situations that may be correct. But paying fees that are too low in exchange for substandard management of a plan is just as much a breach of fiduciary responsibility as paying fees that are too high.
Apples and Oranges: Comparing fees is simple; comparing the services provided for those fees, less so. When comparing plan providers, note in detail the services provided. The list of services offered by a full-service plan provider is likely to differ greatly from a no-frills offering that may be a sideline for another firm such as a payroll provider.
Competency and Value: There are no shortcuts to doing your homework here. It’s always tempting to choose a lower price, especially when that decision is reinforced by the belief that saving money is in the best interest of plan participants. But the risks of cutting corners on competency are very real, and chief among those risks is finding your firm in hot water with the Internal Revenue Service or Department of Labor. Look first for competency, and don’t confuse the lowest price with the best value.