Important Considerations for the RFP Process

Selecting a defined contribution (DC) plan recordkeeper, financial adviser or other service provider through a request for proposals (RFP) process can ensure it is best suited to the plan.

The RFP serves as a decisionmaking tool and provides important details based on personalized plan approaches, says Jim Scheinberg, managing partner at North Pier Search Consulting. Without using a well-constructed RFP and by just taking marketing proposals, employers risk noncompliance. “Far too often, that will end up leading to the employer purchasing a product from the most skilled marketers and not necessarily choosing the retirement plan service provider—whether it’s a recordkeeper or adviser—that best meets the plan or participants’ needs,” Scheinberg says.

He breaks down the RFP clientele into two markets: small and large plans. In smaller plans, employers are more likely to base their decision for a provider on the most prolific marketers, he says. This can be the organization that is frequently cold calling, constantly advertising their campaigns, etc. In this case, the employer’s decision to hire an adviser is based on the likeability or comfort level of the individual, and not necessarily on an objective evaluation process. By using an RFP that’s properly constructed, employers can do side-by-side comparisons of their short-list finalists to find out who the most qualified individuals are, regardless of the relationship an employer may have with them.

Additionally, Scheinberg warns that smaller plans are more likely to select a retirement plan adviser based on ancillary services they may already be consuming. For example, an employer may go to a benefits broker because they already have a business relationship with the broker, or they may go to a banker because a close executive in the company already has a personal financial relationship with the professional. “Both of those can obscure making a prudent decision for what’s best for the retirement plan by putting a personal lens over the decisionmaking process,” Scheinberg cautions.

For larger plans, the RFP is essential in creating a well-documented, prudent process that employers can go back to should their decisionmaking be questioned. How often does one need to embark on a full RFP? There is no fast and steady rule that’s been passed down from the regulators, Scheinberg says, but he notes that as an organization enters the seven- to 10-year range, challenges to the plan sponsor’s vetting of providers can crop up. He recommends going through an RFP process every five years, to stay on the safe side.

Jordan Rice, a manager at Innovest Portfolio Solutions who also leads the RFP process for the company, suggests employers go through the process every three to four years, and maybe five if they believe services are reasonably valued and costs are appropriate. “There’s a fiduciary obligation to ensure that everything [providers are] offering is useful and still current, and that they’re offering to participants the best services that they possibly can,” he says.
Along with Rice, Wendy Dominguez, president and cofounder of Innovest, highlights several best practices for employers that include designing specific RFP questions for surveying, inquiring about certain enhancements tailored to the plan and evaluating prices and fees.

Detailed RFP Questions

The first step in the RFP process is asking the client pertinent questions, Rice says. From that conversation, employers can pinpoint individual issues. For example, if a plan sponsor is inquiring about the enrollment process, instead of asking, “Can you explain your enrollment process?” try, “Can you enroll on a mobile device? Can you enroll over the phone, online? How many steps does this take? What is the average amount of time it would take a participant to enroll in the plan?”

A recent Innovest whitepaper also recommends interacting with and interviewing service teams, especially during finalist presentations. Additionally, plan sponsors may craft a Service Level Agreement (SLA) that includes three components: services to be provided, measurable standard for appropriate service level and penalty when services fall short. Under the SLA, employers would create a list of available services, and then have the service team provide a measurable standard and penalty. This written document holds the recordkeeper accountable should changes occur, according to the whitepaper.

Enhancing the Plan With Key Services

When evaluating recordkeepers, advisers and providers, they may tout certain enhancements to appeal to the employer, such as advanced technology, payroll and contribution efficiency or plan sponsor and participant websites. It’s important for the employer to examine if these improvements will directly match the needs of the plan and participants, Rice says, and ensure that the pricing is cost-effective for the services rendered before agreeing to them.

Gauging Prices and Fees

Rice notes that measuring fees is, at times, the largest struggle in selecting a provider, as costs can be drastically different even if, on paper, all services look the same. You may have an outlier with 30% higher fees than everyone else, or conversely, 30% lower fees than other parties. If there is a product or service that is extremely unique or specialized, that may explain the cost, he says.

However, it’s important to underline that employers are not obligated to select the lowest fee, and that pricing should not be the only consideration. Some features, such as customer service offerings, the number of education days when recordkeepers host group presentations, or even some sort of proprietary investment are all reasons behind higher and lower fees. “You have to look at it in context with the whole situation,” Rice adds.

Dominguez emphasizes the importance of not asking open-ended questions to assess fees. “You have to be very specific in asking the vendors for exactly what you want,” she stresses. “If you lay that out very clearly, you will get fees that reflect that and are easier to assess and evaluate relative to each other.”