Do the research when selecting a 401(k) provider

There's a lot riding on your organization's 401(k) and its service provider.

Finding the best investment firm for your employees is a delicate process. You are responsible for ensuring that your plan complies with federal law.

The Employee Retirement Income Security Act (ERISA) requires that business owners serve 401(k) members as fiduciaries. Owners should administer and manage their plan only in the best interest of its participants.

Look at your needs

Before identifying potential firms, know which services and features you'd like to provide to your employees. Basic services include legal, accounting, trustee and custodial, record keeping, compliance, and investment management. Well-managed plans may also include education and consulting for your employees.

Ask that potential providers provide information on:

• Their business structure
• Financial condition
• Technical capabilities
• Size of their staff, and
• Who will handle your account

They should also provide information on:

• Educational background
• Professional certifications
• Relevant training/experience
• Performance record
• References if asked

They should have appropriate insurance, which includes a fidelity bond to protect against losses from dishonest acts.

Ask each candidate to provide details on any litigation; regulatory problems and their retention rates.

Compare details

You should clearly understand the services that are proposed and related fees. Fees should be reasonable compared to industry standards. Remember that while cost is important -- consider competence, plan administration, and employee education options.

Ask the potential investment providers to help formalize and write an investment policy statement, which would protect trustees, instill process and discipline, and provide accountability.

Don't forget to look into any hidden costs of the plan. A good retirement plan will offer sound, low-cost options because they pool investments. All too often, mutual fund fees can inflate, resulting in subpar returns.

The provider should offer a range of investment options covering multiple asset classes. Large and small stocks, foreign stocks, emerging markets, REITS, and various bond options should all be offered. Index funds are also great solutions as they offer excellent diversification and low cost.

Some of the better plans may even offer model portfolios where your employees can bypass the fund selection process and just decide if they want to be an aggressive (mostly stock) or conservative (mostly bond) investor.

Avoid conflicts of interest. Proprietary funds and products, incentives for recommending certain funds over others, and promoting expensive products can be good for the companies but bad for your participants.

Selection and review

Keep track of your selection process and be sure your provider clearly communicates and understands the mutual obligations to assure participants receive good value at a reasonable cost.

Lastly, you should occasionally review your provider's performance, the services offered, the quality of the educational program, and the overall costs.

Ask your participants to provide feedback. Remember, you are in charge of their money!

Brent A. Lindell is responsible for managing all aspects of the financial planning and investment process for the Madison office of Savant Capital Management.