Employee benefit plans play a significant role in attracting and retaining top talent in organizations. To ensure the smooth and effective administration of these plans, many employers rely on service providers to handle various aspects of plan management. Service agreements between plan sponsors and service providers establish the relationship and outline the scope of services, responsibilities, and compensation arrangements.
As employee benefit plans become increasingly complex, it is imperative for plan sponsors to carefully evaluate and review their service agreements. When reviewing service agreements, take a step back and evaluate the relationships with your service providers and decide if the scope of the agreement fits your organization’s needs. Here are some factors to consider in your review process.
Does the Relationship Ensure Regulatory Compliance?
The landscape of regulations surrounding employee benefit plans is constantly changing and plan sponsors are ultimately responsible for ensuring their plan remains in compliance. Reviewing service agreements allows plan sponsors to identify any gaps or discrepancies that could expose the plan to compliance risks. This minimizes the risk of non-compliance and potential legal and financial consequences for the plan sponsor.
Are the Service Providers Fulfilling Their Obligations?
Service agreements outline the responsibilities and expectations of both the plan sponsor and the service providers. Regular review allows sponsors to evaluate whether service providers are effectively fulfilling their obligations. By assessing the performance of service providers, sponsors can promptly address any issues, inefficiencies, or gaps in services. This can also help keep costs in check.
Are the Service Providers Costs Reasonable?
Regularly reviewing service agreements enables sponsors to assess the reasonableness of plan costs and confirm that they align with industry standards. Plans with excessive cost to the participants can also be at risk of legal action from participants.
Do the Service Provider Relationships Safeguard Participant Interest?
Plan sponsors have fiduciary responsibilities to act prudently and in the best interest of plan participants. Regularly reviewing service agreements is a crucial risk mitigation strategy, as it allows employers:
- To identify potential conflicts of interest or party-in-interest transactions.
- Understand the scope of fiduciary responsibilities assumed by service providers.
- Ensure the plan sponsor is performing any duties that are not outsourced.
Is Service Agreement Aligned to the Changing Business Needs?
Businesses undergo transformations over time, including mergers, acquisitions, or organizational restructurings. When such changes occur, reviewing service agreements can help ensure that the agreements remain aligned with the organization’s new structure, operations, and objectives.
Are Service Providers Leveraging Technological Advancements?
Advancements in technology have transformed the employee benefit landscape, providing innovative solutions for plan administration and participant engagement. Regularly reviewing service agreements gives plan sponsors an opportunity to assess whether their service providers are leveraging the latest technologies and tools to enhance plan efficiency, automate processes, and provide a seamless digital experience for participants. By embracing technology-driven solutions, employers can stay ahead of the curve and provide their workforce with modern, user-friendly benefit platforms.
Employee benefit plans are a critical component of an organization’s total compensation package, and the effective administration of these plans relies on reliable and competent service providers. Regularly reviewing service agreements allows plan sponsors to ensure that they understand the scope of these arrangements, the cost structure, the risks involved, and allows plan sponsors to evaluate if these agreements meet their changing needs. The employee benefit team at Hawkins Ash CPAs can provide the guidance employers need. Contact us today.