How not to hire a 401(k) service provider

Just to your left is a picture of one of the 10 vehicles damaged in a parking lot at a hospital by a fire that started in the trunk of someone’s car. Fire firefighters suspect that fumes built up inside the trunk and were ignited by an electrical source, such as the taillights or brake lights. The gas containers did not have the lids on tight. They only had the spouts with caps, which would allow vapors to leak.

You can see this visual metaphor coming a mile away, can’t you? It’s about plan sponsors making good decisions, one of which is the selection of 401(k) service providers. LaRue has retirement plan sponsors refocused on that – or they should be. LaRue, after all, was about a participant who claimed that the plan’s fiduciaries failed to follow his investment instruction to sell securities. This failure, he claimed, resulted in a loss of $150,000 in the value of his account.

Selecting 401(k) service providers in a prudent manner (it is, in fact, a fiduciary function) may avoid such problems down the road. And so, here’s just a short list of how plan sponsors should not select 401(k) service providers.

  • Not understanding service and investment models
  • Not understanding fees
  • Not listening to employees about what matters to them
  • Making the decision-making based solely on company politics and other relationships
  • Looking solely at “costs”

It’s a new day out there, folks.

Picture credit: How Not to Transport Gasoline on the Naval Safety Center website.