Cover | Published in June 2015

Building Up

A successful RFP starts with a strong foundation, followed by plan customizations.

By Judy Ward | June 2015
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PS615-Story-Portrait-CStory-Shout.jpgArt by ShoutWhat is commoditized in recordkeeping services these days, and how do you get the most out of your provider? It depends on how you approach the request for proposals (RFP) process, adviser Ellen Lander says.

“We all get so glib and say [services are] a commodity, but I do see differences [between firms],” says Lander, a principal at Renaissance Benefit Advisors Group in Jamison, Pennsylvania. “A lot of it is pretty much the same—but many of the important things are not. If you dig deeper, the differences are there.”

Sponsors have the opportunity to see those distinctions. Asked how often they formally evaluate their defined contribution (DC) provider, 57.8% of respondents to the 2014 PLANSPONSOR Defined Contribution Survey replied, “annually,” with “every two to less than three years” ranking second, at 9.8%.

The median recordkeeping fee stood at $70 per plan participant last year, compared with $80 a year earlier, the NEPC 2014 Defined Contribution Plan and Fee Survey found. Sponsors’ willingness to re-evaluate their recordkeeping deals has fueled much of the fee decline. For 2015, though, the rate of fee decreases appears to be slowing, says Ross Bremen, a partner at investment consultant NEPC LLC, in Boston.

“We saw last year that a majority of plan sponsors had re-contracted [with their current provider or a new one] in the past three years, and we will continue to see plan sponsors re-contracting,” he says. “It’s likely that we’ll see fees continue to decline, but, at some point, rationality does need to prevail: Recordkeeping services are not free to provide.”

Evaluating RFPs
With fees compressed, analyzing the differences in services and the value for fees becomes even more critical. A plan sponsor can evaluate RFP responses much more effectively if it takes two important steps at the start of the search process. First, “It’s really crucial upfront to clearly outline the goals and objectives of the search,” says Tyler Polk, a consultant at Fiduciary Investment Advisors LLC in Windsor, Connecticut. “Then you can break that down into sections of the RFP that represent those different objectives.”

To determine those goals, a sponsor should think in-depth about “what has frustrated [it] with its recordkeeper in the past, and what it’s been happy with in the past,” says J.D. Carlson, CEO and president of Plan Design Consultants Inc., a third-party administrator (TPA) in San Mateo, California, whose work includes vendor-selection assistance. “Also, they should think about what is important to them about this search from a fiduciary perspective, from a payroll perspective and from a participant perspective. Try to narrow it down to the key ‘pain points.’”

Defining clearly what a plan and its participants need enables a sponsor to better judge a recordkeeper’s RFP response about what it can provide. “If I have a plan with less-sophisticated investors, I probably want substantial participant support. And I use vendors with offices in multiple states when the client has locations in multiple states—I look for local service support,” says adviser Brendan Feitelberg, president and CEO of Nautical Financial Group, an LPL Financial affiliate, in Boston. “But if it’s a professional firm with knowledgeable participants, a sponsor may mainly want the lowest-cost investments and services, and not need all the bells and whistles.”

Second, all the key people from the sponsor’s team should be involved from the start and help design the RFP with some customized and open-ended questions, to encourage the type of responses they want, says James Czerniak, managing director at Financial Advisory at The PrivateBank, in Chicago. That includes the human resources (HR) staff member who will work most closely with the recordkeeper, the staff member who takes the lead on payroll issues, the employer’s legal counsel and the plan’s adviser.

Once RFP responses come in, plan sponsors can get a much better feel for what recordkeepers offer in the non-commoditized areas of the business that matter most to them. Sources suggest three current sponsor-focus areas where recordkeeper services can differ substantially:

The participant experience. Many sponsors performing searches now see this as the key value-added element, says Paul Kerry, a Boston-based senior consultant at NEPC. For example, some providers have mobile applications (apps) that let participants perform a full range of transactions, while others do not. Some have introduced new participant website tools to help them with choices such as the optimal time to start taking Social Security benefits. Some providers will do one-on-one educational meetings with pre-retirees, helping them understand key concepts such as longevity risk. “Everything is geared to help the participants end up with what they need in retirement and understand how to draw down that money,” he says.

The usefulness of recordkeepers’ participant websites depends on the participant base, Lander says. “I have been surprised at what a differentiator the websites have become during the RFP process,” she says. Some recordkeepers have a site that works better for sponsors with a savvy work force that feels comfortable utilizing sophisticated tools that let them devise a holistic financial plan. Other providers’ sites fit better with sponsors that want to present their employees with a simpler, more visual interface and an ability to drive home straightforward action steps for retirement readiness.

Assessing the participant experience that recordkeepers offer means looking at a range of nitty-gritty details, too. When he helps sponsors evaluate RFPs, Feitelberg utilizes tools including a system from his broker/dealer (B/D), LPL; in addition to providing data such as peer-group plan expenses and benefits, it also compares recordkeepers’ services. The system has data about vendors including the speed of their participant loan turnaround and the average hold time for a call to the provider’s participant call center.

Fee allocation. Re-contracting plan sponsors increasingly want to eliminate or minimize revenue sharing and move more to explicit administrative fees, Bremen says. That trend already has started moving down-market from the larger plans, he adds.
“My clients have become increasingly uncomfortable about the allocation of fees, and that’s driving many searches,” Lander observes. She says that when looking at RFP responses, she finds that providers’ approaches to allocating fees can differ substantially, as their ability and willingness to do fee levelization or fee equalization differentiates them.

• Sponsor resources.
Over the past few years, many recordkeepers’ sponsor websites have changed significantly, Kerry says. “Providers have added much more in terms of prescriptive analytics and how they mine plan data and present it to the plan sponsor,” he says. “They are able to more easily identify who’s on track and who is not on track for a successful retirement, measured against replacement income.” But recordkeepers’ data-mining abilities and their willingness to do that analysis proactively for sponsors differs, he says.