Questions to Ask a 401k Provider
Twenty questions for an employer, HR lead or retirement committee sitting across from a 401k provider, whether you are choosing one for the first time or reviewing the one you already have. They cover who actually does what, every layer of fees, the fund lineup, fiduciary status in writing, payroll integration, and the service your employees will really get.
20 questions, each with the reason to ask it · includes a conversation guide
The questions
Open any question to see why it works.
- 1
Which parts of this do you do yourselves, and which are done by another firm?
A 401k typically involves a recordkeeper, a custodian, a third party administrator and an adviser, and one company may be all of those or only one. Ask them to name the other firms, because the handoffs between them are where problems live.
- 2
Are you a fiduciary on this plan, and will you say so in the service agreement?
What counts is the wording in the contract, not the answer given in the room. Ask whether it is a 3(21) or 3(38) role and which specific decisions it covers, since many providers are fiduciaries for nothing at all.
- 3
What are all the fees, both as dollars per participant and as a percentage of assets?
Asking for both forms defeats the habit of quoting a small-sounding percentage. Asset-based pricing rises every year as the plan grows even when the work involved does not change at all.
- 4
Which fees does the company pay, and which come out of employee accounts?
This split is often unclear until the first quarterly statement arrives. Employees notice money deducted from their balances, and the answer decides whether the plan looks cheap to you and expensive to them.
- 5
Do you receive revenue sharing or any other payment from the funds in the lineup?
Revenue sharing means part of your cost is buried inside fund expenses rather than invoiced to you. Ask whether it is credited back to participants and how that appears on a statement they can read.
- 6
What would this plan cost in five years at our expected headcount and growth?
Providers quote today's price for today's numbers. Running it forward is the quickest way to see whether a fee schedule that looks competitive now stays competitive once the assets double.
- 7
What does it cost to leave: termination fees, deconversion charges, surrender charges?
Exit costs are the least discussed item in any proposal and the most expensive surprise later. Ask for the figure and ask which page of the contract it appears on.
- 8
Who selects the fund lineup, and can we remove a fund we do not want?
Some providers require their own funds or make substitutions slow and awkward. Ask what happened the last time a client asked to drop one of their products, which is a more revealing question than whether it is allowed.
- 9
How many of the funds you are proposing are your own?
A lineup weighted toward the provider's own products raises an obvious conflict. It is not automatically wrong, but you should be able to explain the selection process if anyone ever asks you to.
- 10
What are the underlying expense ratios, and do we qualify for institutional share classes?
Plans are frequently placed in retail share classes of exactly the same fund at a higher cost. Ask what asset level unlocks the cheaper class and whether they move you automatically when you cross it.
- 11
Who is our day-to-day contact, and how many plans do they carry?
Service quality is mostly a caseload question. A named person with sixty plans behaves differently from a shared inbox, and the difference shows up during payroll errors, loans and terminations.
- 12
How does your system connect to our payroll, and what breaks during a change?
Payroll integration is where most administrative errors begin, particularly with deferral changes and loan repayments. Ask whether it is a genuine integration or a file somebody has to remember to upload every period.
- 13
Who handles annual testing and the Form 5500, and what do you need from us?
Compliance work is divided differently by every provider. Get the calendar of what they need and by when, because a missed data request in the autumn usually becomes a correction filing in the spring.
- 14
What happens if the plan fails nondiscrimination testing?
Failure means refunds to highly paid employees or an employer contribution, neither of them welcome. Ask whether they run a mid-year projection that warns you while there are still options, or tell you in February when there are none.
- 15
When you make an error, how is it corrected and who pays for it?
The useful part is the correction process rather than a claim about accuracy. Ask for an example of a recent mistake on another plan of our size and what it took to put right.
- 16
What does enrollment look like for an employee who has never done this before?
Participation rates depend heavily on this one experience. Ask to see the actual screens, and ask what exists for employees who have no work computer or no company email address.
- 17
Can employees reach a real person, and in which languages?
Call center hours, wait times and language coverage matter more in some workforces than any investment question in this list. Ask for the current average wait time rather than the target wait time.
- 18
Which plan features would you suggest we consider, and what does each one cost?
Automatic enrollment, automatic escalation, safe harbor contributions and Roth options each change both cost and administration. Ask for them priced separately rather than folded into a single bundled number.
- 19
How do you handle cybersecurity and account fraud, and who bears the loss?
Retirement accounts are a fraud target and liability is often undefined until the day it matters. Ask what their written policy says about reimbursing a participant whose account has been emptied.
- 20
Can we speak to two clients our size who joined you in the last two years?
Recent clients of similar size tell you about the conversion and the service as it is now, not about a relationship formed years ago under different staff. Ask them specifically about the first ninety days.
Choosing and reviewing a provider
Practical guidance for the conversation itself.
Before you take the meeting
Before you take the meeting
- Write down your headcount, average balance, total plan assets and payroll system. Every quote depends on these and vague numbers produce quotes you cannot compare.
- Know what you are trying to fix. Cost, administrative burden, low participation and bad employee service lead to different providers.
- Pull your current fee disclosure and total what the plan actually paid last year, including anything netted out of fund returns.
- Decide who is on the committee and write down that this is a fiduciary decision made in the interest of participants. That record matters later.
- Ask two or three providers the same written questions rather than sitting through three different presentations.
Reading a fee proposal
Reading a fee proposal
- Convert everything to one number per participant per year. It is the only form in which competing proposals can be compared honestly.
- Look for the layers separately: recordkeeping, administration, advisory, custody, and the expense ratios inside the funds.
- Watch for fees that are waived for the first year. Ask what the price is in year two and put that in the comparison instead.
- Check per-event charges: loans, hardship withdrawals, distributions, domestic relations orders. These are paid by individual employees and rarely appear in a summary.
- Ask for the proposal to be restated at your projected assets three years out. A percentage-based quote and a flat quote can swap places entirely.
Warning signs
Warning signs
- Fees are described only as a percentage, or the total dollar cost cannot be produced in the meeting.
- Fiduciary status is asserted verbally but is absent or heavily qualified in the draft agreement.
- The proposed lineup is dominated by their own funds and the selection process cannot be described.
- No named service contact, or a contact who cannot say how many plans they handle.
- Reluctance to give references from clients of your size who joined recently.
- Pressure to sign before the end of a quarter, or a price that expires on a date that has nothing to do with your plan year.