One of the most important duties a retirement plan adviser can perform for their plan sponsor clients is conducting a request for proposals (RFP) to help them select service providers that will deliver robust services at competitive fees. On face value, an RFP may seem like a straightforward process, but, if conducted properly, it can actually be quite nuanced.
As the pool of service providers becomes smaller through mergers and acquisitions (M&As) and they become more commoditized, “it is becoming harder and harder to differentiate between service providers through RFPs,” says Dan Peluse, director of Wintrust Retirement Benefits Advisors. One way advisers can help differentiate between service providers is to home in on the objectives of the clients in running their plan, Peluse suggests.
Carol Buckmann, co-founding partner of Cohen & Buckmann, recently published a blog post detailing how to conduct an RFP more precisely, titled “The ABCs of RFPs.”
Buckmann says the first step is to start with a promising candidate pool, which, she says, can be accomplished by asking other plan sponsors for recommendations on service providers they are happy with. In addition, she adds, “your ERISA [Employee Retirement Income Security Act] attorney or CPA [certified public accountant] may also be able to identify candidates that they believe will do a good job.” To get a good sampling of the marketplace, Buckmann suggests having a pool of four to five candidates.
Next, Buckmann suggests that the RFP ask candidates detailed questions about their service offerings that will yield better information than is available on their websites.
Peluse says some of the questions he asks are, “If it is a recordkeeper, does it provide 3(16) fiduciary support? What kind of investment are they making in technology, and, most importantly, what is the participant experience that they can deliver? That can be anything from apps on the website to financial wellness programs, college savings 529 plans and health savings accounts [HSAs]. It is important to identify what a provider can offer. It is also important to determine if the recordkeeper is capable of payroll integration with the current payroll provider. Anything they can offer to make plan administration easier checks off a lot of the boxes.”
Buckmann adds: “ERISA has many special rules, so specific experience with ERISA accounts is a must. The request should ask for the number of ERISA clients the provider has, their average size, ERISA assets under management [AUM] and the rate of turnover of ERISA clients, as high turnover is often a sign of client dissatisfaction.”
It is also smart for sponsors to ask about the staff that will be provided to support their account, Buckmann says. In this day and age, it is also critical to ask about the candidate’s cybersecurity protections, she says.
As an ERISA attorney, Buckmann says it is important to ask the candidates for their “standard contract and [to] ask about the extent to which those provisions are negotiable.” She then suggests that the sponsor set a schedule and determine a hard stop on when they intend to make their final decision.
Once the RFPs have come in, the plan sponsor’s retirement plan committee as a whole should review them and select the two or three most promising candidates for interviews, she says. In these meetings, the committee can ask about their services and whether their fees are negotiable. “You will also get a feel for whether you are comfortable with the provider, and whether the provider is responsive and professional,” she says. “You can’t tell these things from written responses.”
Buckmann says it is important for sponsors to realize that ERISA does not require them to select the provider with the lowest fees; rather, they need to weigh the quality of the services that are offered.
When making a selection, Buckmann says, the committee members should discuss their assessment of the candidates and perhaps assign a value rank to each. It is also helpful to speak to one or more of the candidate’s current ERISA clients, she says. And while doing all this, the committee must document its discussions.
Once the committee makes its selection, it might seem like the process is over, but, Buckmann maintains, there is still room for more negotiation. She says the committee should inform the successful candidate it is in the final running, but say that “its selection is subject to negotiating a mutually acceptable service agreement.”
“This is important because ERISA attorneys are sometimes contacted to review contracts after the selected candidate has started to work, and, in that situation, there is little to no bargaining power to negotiate changes to provisions that may be one-sided,” she says.
If the provider is replacing an incumbent, it is important to ensure that the two providers coordinate their efforts so that there is no hiccup in service, she says. That said, there may have to be a blackout period in which the participants cannot make changes to their investments or take loans or distributions from their accounts, she says.
As a general rule, sponsors should follow the guidelines from the Department of Labor (DOL) and conduct an RFP for each of their service providers every three to five years to ensure that they are up to snuff on what is available in the marketplace and that their fees are competitive. If they find that they are not, Buckmann says, they can always try to negotiate lower fees or additional services from their current provider using the findings from an RFP.