When considering picking people to provide administration services to your 401(k) plan you have choices not only between individual providers but also types of providers. Generally there are two types, which further break down further into smaller categories. The two main types are bundled and stand alone. Bundled providers provide administration services to your plan but they also provide investment services to your plan. Generally speaking this group breaks down to mutual fund companies and Registered Investment Advisors that also provide administration services. Stand alone providers are just as they sound they only provide administration services to your plan. This group is also separated into smaller groups. Those that align themselves with mutual fund companies and those that don't. When a provider aligns itself with a mutual fund company you must ask yourself why. Usually it is because they get compensation from that fund company. Many will use this compensation to offset the fees you pay but usually because they result in higher fees at the mutual fund level that are hidden.

Bundled providers tend to have a more incestuous relationship. If the provider is a mutual fund company (i.e. Fidelity, etc.) they recommend their own mutual funds as the "best options" for your plan. This is dangerous because any advice that is given or service that is rendered is done so through the prism of how it impacts their funds. When there is a compliance problem with your plan there is generally more than one action that can be taken to correct the problem. The only suggestion that you'll get from your administration contact will be the one that is most beneficial to the fund company rather than what is best for your company.

A Registered Investment Advisor that also provides administration services can have the same problems but also even though you pay a premium for "unbiased" investment advice and their advisor arm (usually) doesn't take compensation from mutual funds their TPA arm can and often does. For example if you have a plan with a Registered Investment Advisor company and they suggest new funds to you and one (or more) of them is an R1 or R2 share class by American funds, their advisor arm gets commission which they usually credit to the plan because by law they cannot keep these. However they also get what's called "Sub-TA" fees for their administration arm and they are allowed to keep these. This relationship raises the question of whether they recommended the funds they did because they are best for your plan or because they are getting compensation from the company that sells those investments.

It's always a good idea to review your plan and providers to determine if those providing services to your plan are looking out for your best interests