Plan fiduciaries should also follow a due diligence process in hiring and retaining service providers. They must make decisions regarding plan service providers that are solely in the best interest of the plan. Plan fiduciaries should therefore choose the plan service providers that they conclude, after diligent investigation, will be in the best interest of the plan overall, not necessarily the least expensive.
TABLE OF CONTENTS
Part 1: Fiduciary Rules
Part 2: Strategies to limit your liability
Part 3: Your Protection Plan
Considerations other than the plan's best interest should not interfere with the selection of service providers. For example, if a corporate officer who is also a plan fiduciary selected a plan service provider who served as a third-party administrator, because they agreed to provide the officer's organization with a reduced interest rate on a line of credit, it would be a prohibited transaction. See additional examples in Prohibited transactions under the Employee Retirement Income Security Act of 1974 (ERISA).
Fiduciaries are also obligated to ensure that the fees paid by the plan to service providers are reasonable. This obligation applies not only when the fiduciary is selecting the service provider but on an ongoing basis as well.
How should I monitor my advice provider?
After a service provider has been selected, the fiduciaries have an ongoing obligation to monitor the service provider. Reviews should be at reasonable intervals and the DOL includes the following considerations:
- Evaluate notices received from the service provider about possible changes to compensation or other information provided when hired
- Review provider's services
- Examine reports provided
- Inquire about policies and practices
- If applicable, review participant complaints
As with the selection process, outlining and documenting the monitoring process can be helpful in demonstrating that a fiduciary has met its responsibilities.