The Request for Proposal (RFP) process for a company’s qualified retirement plan (“Plan”) documents the due-diligence process in which the Plan providers are selected. Using an RFP can help to find more cost-efficient plan options and educate the Plan’s fiduciary stewards (Plan Sponsor, Retirement Plan Investment Committee and Plan decision makers) on the different level of services offered by the industry’s service providers.
In court case George v. Kraft Foods, 2011 WL134563 (7th Cir. 2011), expert testimony claimed that automatic renewals of service provider contracts should not occur without soliciting bids from other providers through an RFP process. The Department of Labor noted that “even very large, relatively sophisticated plan sponsors shop for services only periodically, generally once every three to five years” while discussing the need for additional disclosures to alleviate the information advantage that vendors have over their plan sponsor clients. While the message above doesn’t establish a fiduciary standard, it suggests the DOL would recommend shopping your plan every three to five years as a minimum requirement, thus a best practice for fiduciaries.
Despite the benefits, it appears very few plan sponsors have issued an RFP in the last five years. A survey by Plan Sponsor magazine in 2011 indicated just over a quarter (27.6 percent) of the subscribers had ever benchmarked their plans via an RFP process.
The following prominent misconceptions may be keeping fiduciaries from conducting an RFP:
1. You have to replace your current provider: Issuing an RFP in no way forces you to move to a new provider. A 2012 study by the Anova Consulting Group found that 31 percent of the companies that issued an RFP chose to stay with the incumbent provider. Think of the RFP process as though you are “shopping around.” If your current provider offers a competitive plan with qualified service, then you can document your committee’s justified decisions of retaining the current providers.
2. You’ll be hounded by sales reps: Yes, professionals who respond to RFPs are looking to earn your business. However, if you clearly state how the service provider’s representative should communicate with you and what information you are looking for, they typically will respect your directive. Finally, once you communicate that you have chosen a different provider, everyone will move on to the next opportunity. Not providing the candidates with a straight and honest response is what keeps them around asking questions.
3. The amount of information to review is unmanageable: Start by prioritizing what are the most important service standards for your Plan. Then develop a RFP focusing on such issues. As you receive the responses, you will need to narrow down the options, typically to around three to five valid candidates. Then ask more focused questions to help guide you to the most appropriate two to three candidates. At this point, a finalist presentation can be conducted.
4. You have to be an expert and do it alone: You can utilize resources from SHRM and other organizations that offer step-by-step instructions and even template RFPs. However, if you aren’t comfortable managing the process, we recommend you hire a fiduciary consultant. For a fee, an independent third-party can help guide you through the decision-making process and serve as the expert on the committee.
5You’ll be held responsible for any existing issues: Both the IRS and DOL promote and strongly encourage Voluntary Correction Programs. Furthermore, your employer should recognize your desire to improve and constantly educate yourself on industry standards. Having serious concerns about the existing plan should motivate—not deter you—from reviewing it.
RFPs are not just another “to do” on your ever-growing list. They can be an incredible tool and educational experience that can benefit you as a participant as well as a fiduciary.
Benefits of conducting a RFP
1. Helps you fulfill fiduciary obligations: We’ve already discussed why conducting a RFP at least once every five years is a best practice for fiduciaries. Not only do RFPs promote fairness and objectivity, they officially document your due diligence and prudent decision-making, and help you monitor your current service providers.
2. Benchmarks your current plan’s performance and expenses: Every Plan fiduciary is required by law to have the Plan pay only reasonable fees to all vendors. Qualified Plan fees have certainly been a legislative topic over the last few years. As opposed to relying on a standard or similar plan, you can receive customized expense and fee information for your exact plan. The new information will also provide you with comparative investment information to benchmark against.
3. Provides a bargaining tool: Whether or not you choose to stay with your current provider, having other pricing quotes provides you the information needed to negotiate fees effectively. Furthermore, you can negotiate service levels, such as an extra educational meeting per year, without additional expense.
4. Learning experience: As an HR professional, a valuable asset to conducting a RFP can be the knowledge gained through the process. Not only will you learn an incredible amount of information on your existing plan, but you’ll be exposed to other, newer options in the marketplace. An RFP process adds experience to a HR professional’s resume, and the additional information can help lead to a better plan and better experience for your plan participants.
You can overcome the stigma that RFPs are overwhelming and not worth the effort. Qualified Plan Specialists are available to help your company benchmark the existing Plan and conduct a RFP process in an efficient and effective manner.
Jeanne Fisher, CFP®, and Kristin Dunlevy, AIF®, are Financial Advisors and Qualified Plan Specialists with ARGI Financial Group, a Louisville-based financial planning and wealth management firm. Find out more at www.argi.net.
This information is provided as a courtesy and should not be construed as specific advice. The inclusion of additional web information does not constitute an endorsement by ARGI, and ARGI is not to be held responsible or liable for the adequacy of the information made available. Advisory services offered through ARGI Investment Services, LLC, a Registered Investment Adviser.