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Meeting Fiduciary Duties: How to Choose a High Quality Provider

Posted by Emily Taibl on Jul 29, 2019 11:37:40 PM


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As an employee benefit plan sponsor, it’s up to you to make sure that you hire competent and high-quality service providers. These include your investment advisor, trustee/custodian, recordkeeper, and plan auditor.

In particular, you have a fiduciary responsibility to hire plan service providers that possess the specialized knowledge and experience required to perform the services you’ve agreed upon. You’re also responsible for regularly monitoring plan service providers to make sure they’re adequately performing the agreed-upon services.

Guidance from the DOL and AICPA

The Department of Labor (DOL) and the American Institute of Certified Public Accountants (AICPA) have issued specific guidelines to help plan sponsors fulfill their fiduciary duty when hiring service providers.

The guidelines start with preparation of a thorough request for proposal (RFP). It’s critical to ask informed questions in the RFP and provide sufficient information to service providers about the plan and scope so they can submit a meaningful response. More specifically, the RFP should do the following:

  • Communicate all of the facts and conditions related to the engagement.
  • Clearly state your objectives and requirements for the engagement.
  • Be specific about the information required to evaluate the proposal properly.
  • Require that all responses be presented in a common format to make evaluation and comparison easier.

They include guidance for proper RFP evaluation of and eventual selection of service providers. For example, the evaluation and selection process should be fair and consistent, and the review of providers’ qualifications should be thorough, uniform, and well-documented. The guidelines also suggest setting minimum standards to limit the number of RFPs reviewed only to those submitted by service providers who are legitimate candidates.

The guidelines recommend performing separate evaluations based on technical criteria and price, with the technical component considered first. This can help reduce the temptation to choose the least expensive service provider even if this provider might not be the most qualified.

According to the guidelines, finalists should be invited for an in-person presentation and discussion of their proposal letter so you can ask them questions directly. This meeting will also offer insight into each candidate’s understanding of the industry and ability to work well with you and your team.

The selected provider should prepare a scope of work agreement and engagement letter that details in writing what services will be provided. This agreement represents a binding legal contract, so you may want to seek legal counsel before signing it.

More Tips

Here are a few more tips for choosing high-quality employee benefit plan service providers:

• Seek out industry experience. There are many details and nuances when it comes to providing services for employee benefit plan sponsors. The more experience providers have in this industry the better.

For example, DOL research indicates that there are more deficiencies in plan audits performed by audit firms that issue fewer than 25 benefit plan audits per year. So be sure to ask candidates how many employee benefit plans they’ve worked on specifically.

• Ask about industry education and expertise. This is especially important when choosing a plan auditor. For example, find out if the auditing firm is a member of the AICPA’s Employee Benefit Plan Audit Quality Center (EBPAQC) and if auditors attend industry conferences and continuing professional education (CPE) courses.

• Consider the extent of services you want from a provider. For example, do you want a provider that will do everything for you—including calculate employer contributions and monitor employee eligibility and auto-enroll participants? Or are you willing to perform some of these duties? Make sure proposals compare apples to apples for the services you desire.

• Obtain SOC1 reports from finalists. Review the reports for an unqualified audit opinion as well as no or few exceptions to the audit procedures. If a record keeping or custody of assets service provider doesn’t have a SOC1 report, this should be a red flag.

• Ask for referrals and recommendations. Your recordkeeper, TPA, investment advisor, and other business owners may be able to refer you to service providers they’re happy with. These professionals usually have a good idea about which service providers have extensive employee benefit plan expertise and strong reputations.

Meet Your Fiduciary Responsibility

Failure to choose high-quality and competent plan service providers could result in a breach of fiduciary responsibility. So be sure to follow the guidance and suggestions listed here to meet your fiduciary duties.

Questions about choosing a high-quality plan service provider? Read our whitepaper here.

Download Our Whitepaper The Quality Auditor: Compliance and Beyond


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Topics: Audit & Assurance