Plan Progress Webinar Series: Provider Due Diligence

Whether it’s selecting a new recordkeeper or financial wellness vendor, it is vital that plan sponsors do their due diligence when searching for service providers, as it is their fiduciary duty to go through a careful and prudent process under ERISA.

Plan sponsors should maintain a regular schedule for conducting requests for proposals or requests for information to ensure all fees and services are reasonable and up to par, according to a panel of experts who spoke at PLANSPONSOR’s Plan Progress webinar series on provider due diligence.

Ron Letaw, managing lead at OneDigital Retirement Services in Tampa, Florida, recommended reviewing plan and participant-level fees on an annual basis, as well as benchmarking those fees annually.

In the public sector, where the Employee Retirement Income Security Act of 1974 often serves as a guideline, Letaw said there are usually procurement teams involved who have strict guidelines dictating the cadence and frequency with which they must go out to market to review their service providers, typically anywhere between every three and eight years. But in the private sector, ERISA still applies, but the procurement rules may be looser, and Letaw said most plan sponsors rely on consultants for advice.

However, Letaw said every five years for private sector plans, it is important to benchmark fees and the scope of services providers are offering. He added that he generally finds employers are happy with their service provider if they conduct a regular schedule of reviews.

Outside of the regular cycle of RFPs or benchmarking, Letaw said if there are issues with a provider’s customer service, for example, or if there are mergers and acquisitions between or among service provider organizations, this could also prompt a plan sponsor to conduct another review to ensure that the provider is still meeting the company’s needs.

Lucas Hellmer, an associate vice president and the director of compensation and benefits at Salas O’Brien, said his company had between six and eight mergers within one year and brought almost 2,000 more employees into their organization in the last few years. As a result, Hellmer said the company regularly reviews providers as it continues to grow at a fast pace.

“If the organization’s needs are changing or the service levels are changing, such as rapid growth within an organization, I think those are certainly triggers to start taking a look at what you have today, as well as what the service providers are providing,” Hellmer said.

When Salas O’Brien went through an exercise at the end of 2022 to combine all their benefit plans into a national plan, Hellmer said the company reevaluated whether their current providers would be able to support their growth pattern.

“One thing that really hits high on my list is making sure that the benefits that you’re bringing to the table are going to be easy to use,” Hellmer said. “If it’s difficult to use and people don’t know how to navigate the website … that’s not going to go well. We certainly look at ease of use, not only from the employer side, but also for the employees.”

Hellmer said he typically does regular reviews of services every year or every two years.

Table Stakes for Providers

Eric Altholz, chair of the employee benefits and executive compensation group at Verrill, argued that cybersecurity is a non-negotiable factor that service providers should include.

“Since the Department of Labor came out with its informal guidance … in April of 2021, that definitely put plan sponsors and plan service providers on notice that cybersecurity has got to be a top concern,” Altholz said.

The cybersecurity guidance from the DOL included tips for hiring a service provider, cybersecurity program best practices and online security tips in order to “safeguard retirement benefits and personal information.”

Altholz also predicted that there could potentially be an arms race between recordkeepers as to which are best prepared to deal with the new provisions in the SECURE 2.0 Act of 2022. He added that his clients care deeply about the participant experience, and many are in favor of services that utilize mobile applications and have easy-to-navigate websites.

Hellmer said when his company decided to move away from a national service provider, the company surveyed team members on what they wanted in terms of services, as well as evaluated whether there were better benefits out in the market than what they were currently offering.

From a fiduciary standpoint, Letaw said automatic features are a “table stakes” item.

“Timeliness of payroll contributions and accuracy of those are [also] critical,” Letaw said. “Payroll providers are getting looked at through a much closer lens now, and you [need] a payroll partner that can support SECURE 2.0 [provisions] and can integrate with other providers.”

Beware of ‘Mission Creep’

Altholz pointed out that a common trend today is service providers trying to be “everything to everybody,” as they have begun to offer more services beyond what they were originally contracted to offer. This concept, sometimes called mission creep, is something of which Altholz warns plan sponsors to be wary.

As service offerings expand, Alholtz said, the fees associated can increase, and it can become easy to lose track of the fees. Every time a plan sponsor opts to accept additional services from a provider, Althotz said it is “better [to] be intentional,” especially if the associated fees are being paid for by the plan’s assets, and it is important to ensure that all additional fees are reasonable for the services being provided.

Hellmer said he tends to shy away from service bundling and warns it can become increasingly difficult to break away from a certain provider if a plan is reliant on it for a variety of offerings.

“While you may get some pricing discounts [by sticking with one provider], you may not always be getting the best product,” Hellmer said.

Fees on the Decline

The good news is that, according to Letaw, recordkeeping fees have significantly decreased since the DOL passed disclosure regulations.

Letaw said he has seen fees, which are a drag on retirement accounts, level off in the past few years. As it states in ERISA, employees should be paying “reasonable fees,” but Letaw said this does not necessarily mean they should be the lowest fees. He argued that it is important for plan sponsors to get good value for the fees they are paying, as well as the services needed to support the plan.

Hellmer added that with new SECURE 2.0 provisions coming into effect in the next few years, recordkeepers and service providers may start adding more bells and whistles to enable plan sponsors to comply with those provisions, potentially raising fees in the process. However, Hellmer said the providers he works with are still evaluating those costs.

Overall, Hellmer said increased transparency from service providers about the fees they charge has significantly caused fees to go down and created more competition in pricing among providers.