What an annual service provider review should cover
A committee that hires service providers has a duty to monitor them, and an annual review is the simplest way to show it is doing that. The review doesn't need to be exhaustive. It needs to be consistent, and it needs to leave a record.
Why every year. ERISA asks fiduciaries to act prudently, and courts and regulators tend to look at the process a committee followed, not only the result. Providers change ownership, staff, systems and pricing between contracts, and the committee is the party that has to notice. A yearly review turns that from a good intention into a routine.
What to collect from each provider.
- The current agreement and any amendments.
- Written fee and service disclosures, including those required under ERISA §408(b)(2), updated for any changes.
- For registered investment advisers, the current Form ADV Part 2A, and a note of any change in ownership, conflicts or key personnel.
- For recordkeepers and others who handle plan data, current independent control reports (SOC 1 and SOC 2, where available) and a summary of their cybersecurity practices. The Department of Labor has published cybersecurity guidance for plan fiduciaries, and committees increasingly ask about it.
- For the plan auditor, the engagement team, confirmation of independence, and the findings from the last audit.
- Evidence of insurance coverage where it is relevant.
What to evaluate.
- Service delivered against service promised. Service-level results, errors, response times and participant complaints.
- Fees. The all-in cost, how it is paid (directly or through revenue sharing), and how it compares with peer ranges for a plan of your size.
- Conflicts and changes. Ownership changes, turnover of the people who serve you, and new compensation arrangements.
- Fit. Whether the provider still matches the plan's size, complexity and needs.
Decide, then document. For each provider, the committee records one of three outcomes. Retain means services and fees were found reasonable. Monitor means something needs follow-up, with an owner and a date. Replace means starting a search. Record the decision, the information it was based on, and any follow-up, so next year's review starts where this one ended.
Keep the rhythm simple. Collect documents ahead of the meeting, review them against benchmarks, decide at the meeting, and track follow-ups to resolution before the next cycle.
Perseptiv runs this review each year for every service provider on the plan, and keeps the findings and decisions in the committee's record.
Talk to us about your plan.
General information, not legal or investment advice.