Best Practices: Keeping Tabs on Service Providers

Selecting competent service providers and advisors is one of a plan sponsor’s most important responsibilities. But the responsibility doesn’t end there — the Department of Labor specifically tasks fiduciaries with periodically monitoring the activities of each service organization to be sure they are properly performing the agreed-upon services.

With this in mind, now may be a good time to review your plan providers. Below are some considerations to keep in mind during your review:

Quality of reporting

You no doubt receive an array of monthly and annual reports from your investment manager, trustee/custodian and other service organizations, on everything from trade date versus settlement date reconciliations to loan activity and defaults. In its Audit and Accounting Guide for Employee Benefit Plans, the American Institute of Certified Public Accountants (AICPA) urges plan sponsors to think critically about the quality of the reports, including:

  • Information — Do the reports contain all the information needed to properly monitor plan activity? Do you receive sufficient data to ensure regulatory compliance (e.g., fee benchmarking for 408(b)(2) plan sponsor and 404(a)(5) participant fee disclosure requirements)?
  • Timeliness — Are the reports received in a timely manner?
  • Accuracy — Are the reports accurate or did they require amendments?
  • Completeness — Are the reports complete or were some of them missing information?

Performance relative to service standards

When evaluating the services performed by providers, determine whether they are providing services in a manner and a cost consistent with your agreements. For example, check actual fees charged versus those stated in the initial agreement.

Also review plan participant comments or any complaints the service organization has received during the year (detailed logs should be maintained by both the service organization and plan sponsor). Likewise, review the procedures for monitoring and resolving their complaints and whether or not complaints are being adequately resolved.


Another key step in fulfilling your fiduciary duty is to understand the quality and effectiveness of the processes, procedures and controls your service organization uses to produce the plan’s accounting information. In particular, plan sponsors should obtain and review a Service Organization Controls (SOC) 1, Type II report each year.

This report includes a detailed description of the service organization’s systems and controls in regard to the plan’s financial statements. The report is prepared by the service organization’s management and contains a certified public accountant’s independent assessment of whether the description is fairly stated and the controls are suitably designed.

Furthermore, it is essential that sponsors make themselves aware of the complementary controls they must have in place to allow the service organization to successfully perform its duties.

“Can We Talk?”

In its publication, Meeting Your Fiduciary Responsibilities, the Department of Labor (DOL) states that plan sponsors must establish a formal review process at reasonable intervals throughout the year to decide whether current service organizations should be retained or replacements sought.

To effectively review a service organization’s operations and controls, the DOL suggests on-site visits by an individual or a team from corporate finance or human resources. Here, you can arrange for spot checks of certain transactions to determine the quality and accuracy of the service organization’s work — particularly if a SOC 1 report is not available from the service organization.

The DOL recommends preparing an agenda that addresses all pertinent issues and areas, as well as touring the facility to get a feel for the operation and atmosphere of the service organization. Also walk through some of the critical processes with employees who actually work on the account and interact with account supervisors and managers.

Of course, face-to-face meetings can also be arranged at your place of business. As an alternative, phone calls and email contact may be employed. Depending on the size and complexity of the plan involved, the DOL suggests that communication with the service organization can be as often as quarterly, but no less than annually.

Benefits of Regular Monitoring

While an effective monitoring program certainly helps to be sure that that plan sponsors are meeting their fiduciary responsibilities, such a program could also provide some additional benefits. Through the monitoring process, plan sponsors may be able to identify potential cost savings, areas for improved efficiencies and/or opportunities to improve participant satisfaction.

We are able to provide additional guidance on monitoring and validating the efficiency of your plan’s service providers.

About the Authors

Geoffrey S. Jacobson
Geoffrey S. Jacobson
Manager, Assurance and Advisory
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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