Selecting Service Providers
January 14, 2013
Question Ė ďHello, we have not made any changes to our 457 plan in a number of years. Whose responsibility is it to select and monitor our planís service providers? Can the city allow our employees to make the decision?Ē
Great-West Financial Legislative and Regulatory Affairs Senior Director Marilyn R. Collister answers:
Mayors and staff members are busy creating and maintaining the best possible cities for their employees and residents. Taking the time to understand and properly supervise the 457 plan is often not on the top of the priority list. As the sponsor of your 457 plan, however, the city is a fiduciary, and thus, the city - not your employees - is responsible for selecting the service providers for the plan.
Selecting competent plan providers is part of your fiduciary duty as a plan sponsor. Under the fiduciary rules applicable to 457 plans, plan sponsors and individuals who serve on plan boards or committees have fiduciary liability when it comes to selecting, monitoring and deselecting plan providers. Fiduciary prudence requires a careful evaluation of the providerís qualifications, the nature and extent of the services being offered, and the reasonableness of the fees charged for those services. It also requires you to monitor your current relationships and assess whether the current providerís fees and services continue to be in the best interest of the plan.
To ensure you are in compliance with your fiduciary duty when deciding whether to retain a current service provider or switch to a new provider, it is extremely important to use objective criteria and prudent processes to:
- Compare the quality of funds and services being offered to the plan,
- Compare the fees charged by the fund companies and service providers, and
- Document your deliberations and your rationale for retaining or selecting service providers.
In summary, being a fiduciary requires the highest standard of care in making service provider decisions. You must be able to show that you have engaged in meaningful analysis when comparing service providers and their fees. Maintaining written documentation showing that the decisions you made are in the best interest of the plan participants and their beneficiaries will help lesson your fiduciary liability.
NOTE: This feature provides general information only. It does not constitute legal or tax advice upon which you may rely. We encourage you to seek the advice of your own counsel when you have plan related questions.
If you have questions about fiduciary responsibility, send them to the Fiduciary Corner at firstname.lastname@example.org. To read more about the new Conference of Mayors Retirement Program, visit the website www.USCMRetire.org. You can also call the Conference of Mayors Retirement Program at 202-302-6944.