Q: We are a nonprofit organization that is planning on establishing a new 401(k) plan for a new for-profit subsidiary member of our controlled group. Must that plan include the automatic enrollment provision that is mandated for new plans under the SECURE 2.0 Act of 2022? We have more than 10 employees, but the new subsidiary would only have about five employees at inception.
Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
A: Section 101 of the SECURE 2.0 Act requires employers establishing either 401(k) or 403(b) plans to have an automatic enrollment feature in their plan, with a default rate between 3% and 10%, a 90-day unwind feature and automatic escalation of 1% per year (up to at least 10%, but no more than 15%). These requirements apply beginning January 1, 2025, for plans established on and after December 29, 2022. As with automatic enrollment features generally, employees are able to make an affirmative election to opt out.
There are exceptions to the requirements, including when the employer maintaining the plan has been in existence for less than three years or normally employs 10 employees or less. As such, the applicability of this provision centers in large part on the identity of the employer “maintaining” the plan. We anticipate guidance will address this issue prior to the 2025 implementation date.
NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.
Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.
When employers execute vendor searches for benefit providers, they must decide whether to RFP or to RFI, as plan sponsors use nuanced, different approaches to issuing a request for a proposal or one for information.
Generally, plan sponsors performing vendor searches for benefit providers use requests for proposals to actively shop the marketplace when considering a change for retirement and health care providers. Requests for information, by contrast, are used to gain a greater understanding of the marketplace, pricing and to explore enhancements, according to plan sponsors.
But employers in some industries can use an RFI to make a provider change, if that suits the needs of the business, sources explain. The decision comes down to the type of business and the key factors being considered in choosing a provider.
RFP vs. RFI
At Hines, a global real estate, investment, development and management company, RFPs are extensive, whereas an RFI is more limited.
The Houston-based employer uses RFPs for “asking the candidate to provide you with a lot more information, and it’s really giving them the impression that there is a good opportunity to engage with you in a partnership, whereas in an RFI, it’s a little bit more abbreviated,” explains Cory Fitts, Hines’ senior director of benefits.
Hines uses RFIs to better understand the marketplace at a high level, for making sure the plan is meeting legal and regulatory obligations under the Employee Retirement Income Security Act and for limiting the plan sponsor’s risks of being sued. The RFI is not necessarily used when looking to make a change, she says.
“There’s two different instances where we would be asking an RFI or RFP[s] be completed: either because we’re looking at the [retirement] plan adviser or because we’re looking at the plan recordkeeper,” says Fitts. “Doing [each] on a regular cadence is pretty important [for] meeting fiduciary ,duties and the decision to choose one over the other depends on your particular needs as a plan sponsor, whether you’re really looking to make a change or you’re just evaluating in the market.”
American Fidelity Assurance Co., however, took a slightly different path, with an RFI leading to an RFP and plan change. The firm evaluated the plan’s retirement plan recordkeeper and investment administrator after a 2020 RFI, which ultimately led to it selecting new vendors for each role at the Oklahoma City-based company.
The life and health insurance products provider eventually made the recordkeeper and investment administrator changes that started with an RFI to gain a greater understanding for whether the company needed to do an RFP, says Thayla Bohn, senior vice president of corporate and human resources at American Fidelity Assurance.
Bohn adds that the company uses RFPs, rather than RFIs, to understand the marketplace, the providers, available services and latest technology.
The RFI was performed to “see if we were missing anything, and once we got the RFI back, we evaluated that to determine whether we needed to do a full-blown RFP,” she explains.
Following the RFI, American Fidelity eyed adding key resources the company identified in the marketplace “to include as part of our requirements to make a changeand performed RFPs for vendors, Bohn adds.
When it was time to search for a new benefits vendor, RFPs were conducted to find vendors with greater technology that could be used to educate employees on optimal use of benefits and with call centers to field questions from workers who prefer to call customer service, Bohn adds.
A Different Way
Salas O’Brien, a construction engineering company, differs from other firms in that it will ask for an RFI to evaluate a provider change.
“It’s one in the same for us,” explains Lucas Hellmer, associate vice president for compensation and benefits for the Irvine, California-based company.
Salas O’Brien issued RFPs and RFIs in 2022 for health care vendors, says Hellmer.
The Southwest Airlines Pilots’ Association approach has three tiers: fee benchmarking, RFI and RFP, explains Mike Haynes, the association’s director of retirement.
The union approaches each differently and issues the benchmarking studies, RFIs and RFPs at intervals, says Haynes.
“We do [benchmarking] periodically, in between when you do an RFI or an RFP, so it kind of fills the gap, because you don’t want to go too far with the current recordkeeper without doing an analysis,” Haynes says.
The value of an RFP or RFI is in the eye of the beholder, but both can be useful tools for plan sponsors searching consistently for the best provider.
