Has Your Company Outgrown Your Retirement Plan Provider?


As your company grows, it’s important to be confident in your retirement plan provider. If you are experiencing growing pains, it may be time to evolve.

Sometimes the shoe no longer fits.

At times, you may notice that the service providers once capable of handling your business’ requests, can no longer meet your growing needs. They may lack the necessary technical knowledge or can’t scale to the size you require to achieve your goals. Yet, you have persevered. You may have sought new partnerships to handle your accounting, payroll, new talent acquisitions, data infrastructure and more. You have found the right companies to remedy your business’ growing pains. Managing a growing business requires its leadership to recognize that its needs will evolve.

The same may be true for a company’s retirement plan. Here are five 401(k) red flags to watch out for and how to manage through them:

1. Too Many Cooks

Plan administration can be complex. It is not uncommon to have many different companies involved in day-to-day operations.  When too many companies have to coordinate data across multiple platforms, mistakes can happen.

If this sounds familiar, you might consider a bundled solution or consolidating multiple retirement programs to one provider. Platform integration could increase efficiencies and help to reduce the likelihood of inaccuracies. Working together is working smarter.

2. Costs Are Unknown

Retirement plans are not free. Two areas to be mindful of are plan costs and investment costs.

Plan costs can be calculated in a number of ways: asset based, per participant or flat dollar, to name a few. If you are unsure of the costs associated with your plan, it is time to benchmark.

Benchmarking the plan’s investment costs is also important. Investment fees are generally calculated as a percent of assets invested. Even a 1% difference in fees can have a significant impact on your employees’ futures. When assessing investment costs, you may want to consider if you are in the right share class—such as A shares, R shares or institutional shares. Or, if there are other investment vehicles, such as mutual funds compared to CITs—that may have a lower investment expense.

A benchmarking analysis should be conducted about every three years to document that plan costs are reasonable.

If your plan costs have not been reviewed in a while or if you have experienced rapid growth, then it is time to request a fee benchmarking report. Plan fees can change quickly, and it’s best to know how much your company and employees are paying.

3. The Refund You Don’t Want

In regard to taxes, most of us hear the word “refund” and rejoice. However, when it comes to 401(k) refunds, that may pose an unwanted scenario.

Throughout the year, your plan administrator should be monitoring to see if any employees are overfunding their retirement account. The administrator should pay close attention to ensure that employees will not have a plan correction.

If a plan correction goes unchecked until the following tax year, then those super-saver employees will have to refile their taxes and miss out on possible market gains. Additionally, since this overfunding scenario typically affects highly compensated employees, it could especially pose an issue for your top talent.

So, an important question to ask is, can your service provider recommend alternative plan designs that could help to reduce the number of refunds?

4. Big Fish in a Little Pond

Sometimes it’s nice to be the big fish; other times, it means that no one else understands your needs. If you’re the largest account for any of your current service providers, you should wonder why.

Find a retirement plan partner that understands rapid growth, mergers and acquisitions, executive benefits, financial wellness programs, student loan repayment options and health savings plans. One that knows how to fit it all together, that is much more than an advisor, but also acts as a consultant. Work with a team that truly understands how to provide specific knowledge and has the technical experience not only to be helpful today, but also to help you become the employer of choice tomorrow.

5. Who Do We Contact?

Dialing an 800-number or emailing to an “info@” inbox is not great service. Rather, it is frustrating and feels as if your questions are minor.

If you or your employees are stuck in a queue waiting for the next available representative, it’s time to conduct a service provider search. Seek out a retirement plan partner that will give you the one-to-one professional support you deserve.

Taking Next Steps

As you read the above five examples, if any ring true, you have probably outgrown your current retirement plan provider. This means that it’s time to take the next step and begin the request for proposal (RFP) process. To get started, select a team member to lead the search. Then set up a meeting to review the findings.

Hiring a new retirement plan service provider is a big responsibility and will take time. However, just like you have experienced in the past, once the new relationship is in in place, it will be a breath of fresh air to work with a fellow partner that provides the level of service your growing business requires.

A Morgan Stanley Financial Advisor can help you understand the options available to your organization and assist you in determining a course of action for your retirement plan. You should discuss any potential changes to your retirement plan with your legal and tax advisors to determine what steps you must take before making any changes.

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Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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