401k Fiduciary RFP responsibilities normally fall to the Retirement Committee members and other trustees. Retirement plan committees and fiduciaries should periodically benchmark their plan service providers. Make sure that the fees the plan is incurring and paying, and the value they’re receiving for their plan dollars are fair and reasonable. The prevailing best practice is to review plan fees and service providers at least once every few years, and one of the more effective ways to do that is by using a process that incorporates a request for proposal (RFP).
Carol Buckmann, Founder and Partner of New York-based ERISA law firm Cohen & Buckmann, P.C., recently penned an article addressing plan fiduciary best practices for RFPs. For those unfamiliar with RFPs, Ms. Buckmann wrote, “… an RFP allows fiduciaries to conduct an objective search for the best providers for their plan.” If you aren’t sure how to conduct an RFP, or if you and your retirement plan committee are too busy to do it, you can consult with an ERISA attorney or RFP specialist who can help.
Regardless of whether a committee decides to conduct the 401k Fiduciary RFP with the help of a professional or chooses to take it on yourself, it is difficult work. Retirement Committees do not conduct 401k Fiduciary RFP assessments with regularity. Consequently, there is a steep learning curve each time need to conduct an RFP arises. Either way, if you are wanting to assess providers via a 401k Fiduciary RFP there are some things you and your committee need to know. Brush up on the best practices that Ms. Buckmann outlined in her article when conducting a 401k Fiduciary RFP:
- Identify quality candidates: Start with recommendations from other plan sponsors, and if you have them, your CPA and ERISA attorney. Ms. Buckmann also suggested “a focused internet search.” If you hire a specialist, lean on them to offer recommendations for quality service providers they have worked with in the past. A broad search that includes more than 2-3 candidates can give you a good sense of the market, Ms. Buckmann noted.
- Develop your proposal request: The RFP is an opportunity to do a deep dive into the service providers you are considering, beyond the services they offer and their related fees. ERISA regulations are complex, so past experience with ERISA plans is a must for the candidates you’ll consider. The RFP should also seek information about how the service provider is compensated, as well as their accompanying cybersecurity policies and procedures.
- Set a schedule: 401(k) Fiduciary RFP processes need specific end dates so the selection segment does not consume more your time than necessary. Have a date in mind when you’re going to make a selection. Know when it is time to replace an incumbent provider. RFPs should not be open-ended, according to Ms. Buckmann.
- Review the responses and select the most promising candidates for finalist interviews: This is an opportunity for plan fiduciaries to further explore candidates’ business, services, and fees (and ask in-depth questions). It’s also a chance to get a feel for the service providers in question. You want to learn whether they will be good to work with. It’s impossible to tell these things from a written RFP alone. Keep in mind, the service provider that charges the lowest fee isn’t necessarily the best. ERISA does not require plan fiduciaries and committees to hire the service provider with the lowest fees – the quality and value-add of the services provided, along with the reasonableness of the fees being charged – are key to the selection process. Nonetheless, when you are looking for a new provider, you should thoroughly vet the investment platform and related fees as part of the RFP process.
- Choose your provider: Retirement plan committees and fiduciaries should come together and discuss the candidates and their preferences. A ranking system can be helpful here, Ms. Buckmann advised. You may also consider asking for and speaking to the provider’s references. In addition, be sure to document the decision-making process and notify the service provider of your decision in writing.
- Coordinate with other providers: Notify all impacted parties, and arrange for access to and/or a transfer of records, especially when replacing a provider. This may also require sending participants a blackout notice, as there may be a period when they cannot conduct transactions or alter their investment elections due to the change in providers.
ERISA is silent on RFPs, however, the Department of Labor (DOL) recommends conducting one at least every 3-5 years. The purpose of an RFP isn’t only to replace existing providers if you’re unhappy with their services. It is also helpful to keep tabs on a constantly changing market. This will help fiduciaries to ensure that the fees you and your participants are paying are reasonable for the value being delivered. And if and when the time comes, a 401(k) Fiduciary RFP can also help you demonstrate to a judge or auditor that your plan isn’t overpaying for services.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.