Recordkeepers and Their Providers: Diligence!



The role of employers in helping workers plan and save for retirement is growing and recordkeeping service providers are responding with expanded offerings, often provided through third parties. Accordingly, when selecting and monitoring recordkeepers, plan sponsors need to understand how their third party services are chosen and monitored.


Who’s Providing What Services?

Recordkeepers are striving to meet the demand for a wider variety of financial wellness services associated with employer sponsored retirement plans. In addition to the rising interest in these services, digital platforms make it ever more possible to arm workers with tools and content needed on the path to financial security and retirement. As Plan Sponsor reports:


Such additional benefits might be particularly appealing to plan sponsors as a differentiator for job applicants in today’s competitive employment market. A Bank of America survey of 834 employers last year found that more of them—46%, up from 40% in 2020—are expanding the types of financial wellness support they offer. When plan recordkeepers partner with firms, across the spectrum of offerings, they often integrate the service with the plan, meaning participants have access to these providers through their web interface or single log on.


Although it’s of course important to provide plan participants with a range of helpful financial planning tools and services, plan sponsors are reminded that they must always know what recordkeepers are offering, as well as how the services are offered and through whom:


It is up to plan sponsors to understand which, if any, third-party providers their recordkeepers work with, which services they outsource, and how they manage that relationship, says Chris Dall, vice president, senior product leader at PNC Institutional Asset Management in Philadelphia. “We recommend that our clients’ recordkeepers are reviewing third-party vendors on an annual basis for changes that might have an impact on plan sponsors and their participants,” Dall says. Conducting due diligence on third-party providers should be an important component of the recordkeeper search, he adds. “While contracting a third-party to provide certain services is not a negative on its own, we’d see it as a red flag if a recordkeeper did not demonstrate strong control processes for the use of such third-party vendors.”


In addition to staying on top of the outsourced services provided through recordkeepers, best practice for plan sponsors means having protection. Afterall, under ERISA law, fiduciary liability risks can be reduced, but never fully eliminated. That’s why Colonial Surety offers an affordable and efficient three point protection plan for plan sponsors: the DOL required ERISA bond to protect the assets of the retirement plan from theft; Fiduciary Liability Insurance to protect you and your assets from personal liability; and, Cyber Liability Insurance to safeguard your company and plan from covered losses and expenses in the event of a cyber breach. Conveniently, Colonial, now offers a comprehensive one year package! Choose yours in minutes, now: ERISA Protection Package Here.




Due Diligence

The growing range of services being offered to plan participants is impressive, with possibilities tailored to address the different needs and life stages of employees on the path to retirement. When assessing the offerings, plan sponsors should carefully consider a variety of factors:


These solutions might focus on paying down student loans or learning how to budget or building emergency savings—there may also be co-fiduciary partners that allow plan sponsors access to 3(16) services or managed accounts via a 3(38) provider. For older participants, there might also be an emphasis on draw-down strategies and planning for income in retirement…Among the factors to focus on while conducting due diligence on a third party are whether it meets a need or solves a problem for the plan sponsor, whether the vendor is financially stable, and how it has performed for other plan sponsors, says Stuart Robinson, CEO of ShareBuilder Advisors in Seattle. This may require checking the vendor’s references. Plan sponsors should also inquire as to possible recourse if the solution does not perform as advertised and ask whether their adviser has other options that might be more suitable.…


It’s also critical for plan sponsors to understand whether a third-party provider is providing services in-plan or out-of-plan. As experts explain:There are pros and cons to each, but the sponsor needs to understand the distinction. If it’s in-plan, there’s a fiduciary obligation [to review it], while an out-of-plan solution may not have a fiduciary obligation attached to it….” Due diligence for plan sponsors means knowing about the services provided participants, who is providing them and how those providers are chosen and monitored. Wade Dykema, of Alerus Retirement and Benefits offers this advice to plan sponsors: “Don’t ever take your hands off the wheel completely….You have to ensure that everything being brought to you is what you want before you make it available in the plan. You have to stay engaged.”


Because most of the supplemental educational programs and services offered plan participants occur in the digital space, due diligence for plan sponsors also requires attention to the cybersecurity protocols of providers. Remember: “The Department of Labor issued guidelines last year outlining best practices for plan sponsors in evaluating all service providers that have access to participant data, including third-party providers. Those best practices include understanding the provider’s cybersecurity measures and processes… Sponsors should also ask recordkeepers about their plans for disaster recovery and their backup procedures if a system goes down….”


Expanding expectations and services make it ever more critical for plan sponsors to have comprehensive protections in place. Without coverage, even a mere allegation of a fiduciary breach can be ruinous. Consider, for example, that in ERISA cases, defense costs alone are about $600 per hour. These days, even a relatively minor cybersecurity incident can rapidly spiral into a fiduciary disaster too. That’s why Colonial Surety offers an affordable Fiduciary-Cyber Liability Pack for plan sponsors. It’s now conveniently available with a one year commitment. Armed with this protection, you’ll have:


  • Legal defense and coverage for penalties against claims of alleged or actual breaches of fiduciary duties—up to $1,000,000.


  • Defense against lawsuits and regulatory actions related to a cyber breach.


  • Expert-led response, notification and crisis management services to prevent a cyber incident from spiraling into a disaster.


Colonial makes it so fast and reasonable for plan sponsors to secure all this protection, that you can obtain yours in minutes now: Fiduciary-Cyber Liability Pack


Pension plan professional? We’re here to help you with your plan sponsor clients—and we’ve got you too. From  Errors and Omissions Insurance to Fiduciary Liability Insurance, Employment Practices Liabiity Insurance–and more, we’re HERE with the coverages pension professionals need to keep the business going—and growing. Insurance for Pension Professionals Right Here.


Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.