What This Year’s RFPs Will Look Like

Between a wave of industry consolidation and some plan sponsors returning just this year to COVID-delayed tasks, industry experts say they are seeing an uptick in requests for proposals this year.

“Over the past few years, we saw a lot of proposals shift to lighter RFI [request for information] benchmarking requests,” says Lee Stevens, head of institutional sales at T. Rowe Price in Baltimore. “But as we’ve come out of the pandemic, we’re seeing a shift back toward more traditional RFPs that are heavier in significant content questions.”

About one-third of plan sponsors expect to go through an RFP process this year, according to data from Cerulli Associates, but only 10% of plan sponsors are doing so with the intention of switching providers. The rest plan to use the RFP for benchmarking purposes.

In general, today’s plan sponsors conduct their due diligence RFPs every three to five years, although they might go through the process more frequently if they or their vendor has recently gone through a merger or acquisition, if they’re unhappy with their existing providers or if they’ve faced litigation related to their plan.

It is important for even plan sponsors who are happy with their current providers to fully buy in to the RFP process, says Matthew Eickman, national retirement practice leader at Qualified Plan Advisors.

“The service team members of a recordkeeper, for example, are not in sales,” he explains. “That means they’re not always as likely to bring new resources or opportunities to the plan sponsor because that disruptive feeling can make them feel uncomfortable when things are going OK. RFPs also create additional accountability and likely create a heightened level of service, just by putting the service provider or their organization under a little bit of pressure.”

Bringing in Technology

Most plan sponsors now go through the process with the help of a plan adviser or consultant. That has also meant a shift in the way plan sponsors collect responses, as many advisers have moved to more database-driven RFP portals, in which the bidders enter the information directly into a system that collects and organizes the responses. Plan sponsors and their advisers can then sort and analyze the data within the platform or export it to manipulate within another program.

Typically, such systems have a set of core questions that don’t change much between plan sponsors, then a section with targeted questions based on the needs or pain points of the specific plan sponsor. Even plan sponsors creating the RFP using a template, such as the one available online from the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, should tweak it to reflect their plans’ specific situation. 

What’s Most Important

While fees are important, understanding how a provider will help the organization with its specific challenges should be a key focus for plan sponsors to get the most out of the RFP process, Stevens says.

“The most effective request for proposal is going to be based on what’s important to the client,” she adds. “For example, if the RFP is a result of dissatisfaction in terms of service with their current recordkeeper, they would want to include questions very specific to those difficulties.”

Then it’s up to plan sponsors and their advisers to scrutinize the responses to ensure the bidders have answered the questions and to look at how their approaches to those pain points compare with one another. Another important factor to consider when evaluating responses: Did the bidders follow your directions?

“That’s an indicator of what it’s going to be like to work with that group,” says Greg Middleton, a senior director at CAPTRUST in Raleigh, North Carolina.

Beyond plan-specific questions, more RFPs are focusing on topics like target-date fund options; guaranteed income; diversity, equity and inclusion;  and financial wellness, experts say. Forward-thinking plan sponsors are also asking bidders about their plans for introducing many of the optional SECURE 2.0 Act of 2022 provisions in the coming years. Many companies are also asking about tech resources and data security, Middleton says.

Eickman suggests that plan sponsors strip out the pricing information at first, focusing instead on the qualitative answers to other questions.

“That seems surprising, because pricing can be the No. 1 reason that people get into RFPs,” he says. “But I believe that taking pricing out, at first, helps plan sponsors more objectively look at responses to determine which are the most appealing. Then you can bring price back in and see if there’s a match between cost and the ones that we thought were the best proposals.”

The Endgame

Once plan sponsors have whittled down their list, they can bring in the finalist candidates for an interview. Experts say many of these interviews are now happening in person, but some companies still prefer hybrid or fully remote meetings for efficiency’s sake. No matter the forum, those interviews should go beyond the RFP responses, leaving the plan sponsor with an understanding not only of how the vendor can contribute, but also of whether the organizational cultures will align.

That said, if a plan sponsor is happy with its existing provider, it should invite them to participate in the RFP process.

“The aim of an RFP is not just to make a change,” Eickman says. “The aim is to achieve better pricing or better service or a combination of both. If that can occur with the incumbent, most plan sponsors would love not to make the change.”