What to Look For in Your 401(k) Service Provider
Courtesy of: Michael L. Beers, CIMA(R), CRPS(R)
Senior Vice President
Family Wealth Advisor
Corporate Retirement Director
Morgan Stanley Easton
Phone Number: 614.269.3401
Web Address: fa.morganstanley.com/fortis
401(k) salary deferral plans are among the most popular retirement plans today. Nearly every financial services company brokerage – firms, banks, insurance companies – offers 401(k) plan services.
A 401(k) plan allows employees to defer a part of their pay. The deferred pay is deducted from an employee’s paycheck and is placed into the employer’s tax-qualified plan. Federal (and in most cases, state) income tax is not due on the deferred pay – or on the plan’s earnings – until the employee withdraws the funds from the plan.
If your organization is considering a 401(k) plan – or if it has a 401(k) plan in place that you are currently reviewing – there are several things to consider. Here is a quick checklist:
First, does the plan you’re considering offer flexibility as to plan design?
Most service providers offer an IRS-approved prototype plan, which can save money over an individually designed plan. But a prototype plan can be inflexible. Make sure that any prototype plan you adopt is flexible enough to meet your organization’s overall needs.
Second, does the plan offer a broad range of investment options?
Nearly all 401(k) plans allow employees to choose their own investments – usually from among several specified alternatives. The service provider you’re considering likely offers its own investment options. But what if these investment choices regularly underperform similar investments? You might want to consider hiring a service provider that allows you to use outside investments for at least some of the plan’s assets. However, you will in any event want to make sure that you will be able to meet your disclosure obligations with respect to any offered investment options – you should consult your legal advisors as to the nature and complexity of those disclosure obligations.
Note that the U.S. Department of Labor has issued rules that could affect your 401(k) plan. These rules spell out what steps a “participant-directed” plan must take for plan fiduciaries – including employers – to avoid liability for poor investment decisions made by plan participants. Generally, these rules require at least three core investment options and quarterly investment switching. Make sure that any plan you’re considering meets these rules.
Third, look carefully at the administrative capabilities of the service provider.
Some providers seek to offer superior investment returns or broad investment flexibility, but are lacking in administrative ability. Remember: Administration is one of the most critical elements of a well-run 401(k) plan.
Check around to gauge the provider’s reputation for plan administration. Call some of the local customers of the provider. Ask, for example, if they’ve received late or incorrect statements. If so, find out how the provider handled the problem. Make sure that any problems were handled quickly and accurately.
And finally, find out whether the service provider helps you with ongoing employee communications.
Communicating the plan’s features and benefits is essential to broad participation. And broad participation is essential to a successful 401(k) plan.
Most service providers will meet with employees when the plan is first set up to help “sell” the plan to them. Often, though, explaining the plan to new employees is left to you. A service provider should be available to come in periodically to reinforce the value of plan participation to employees.
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 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.
_____________________________
Sources/Disclaimers:
Article by Morgan Stanley and provided courtesy of Michael L. Beers, Morgan Stanley Financial Advisor
If you’d like to learn more, please contact:
Michael L. Beers
Senior Vice President
Family Wealth Advisor
Corporate Retirement Director
The Fortis Group at Morgan Stanley
4449 Easton Way, Suite 300
Columbus, OH 43212
(P) 614.269.3401
(E) Michael.Beers@morganstanley.com
(W) fa.morganstanley.com/fortis
By providing this third party publication, we are not implying an affiliation, sponsorship, endorsement, approval, investigation, verification or monitoring by Morgan Stanley of any information contained in the publication.
Michael L. Beers may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where he is registered or excluded or exempted from registration, fa.morganstaley.com/fortis.
This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Morgan Stanley offers a wide array of brokerage and advisory services to its clients, each of which may create a different type of relationship with different obligations to you. Please consult with your Financial Advisor to understand these differences.
Morgan Stanley Smith Barney LLC is a registered Broker/Dealer, Member SIPC, and not a bank. Where appropriate, Morgan Stanley Smith Barney LLC has entered into arrangements with banks and other third parties to assist in offering certain banking related products and services.
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. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.
Morgan Stanley Smith Barney LLC. Member SIPC.
CRC 2061123 (4/2018) CRC 2116579 (5/2018)