Administration June 19, 2015

When Procurement Is Involved in the RFP Process

Procurement departments can help with the efficiency of the RFP process, but they shouldn’t just be left to their own devices.
Reported by

“More frequently we’re starting to see requests for proposals (RFPs) [for retirement plan service providers] go through procurement departments,” says Kathleen Kelly, managing partner at Compass Financial Partners in Greensboro, North Carolina.

Stephen Popper, managing director at SageView Advisory Group in Boston, explains that procurement departments for large organizations are in charge of any outside engagement of services or supplies, from furniture to fiduciary investment services. “Their job is to get something for a business unit.”

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to Popper, some procurement departments are involved in every step of the RFP process; many write the RFP, some get involved in provider reviews or presentations, and they are always involved in cost negotiation. “This is why they get involved—for cost control,” he says. “The company wants to make sure prices are negotiated and stay within budget.”

Kelly adds that fiduciaries or plan committee members often have other pressing responsibilities than the retirement plan. “From an efficiency standpoint, I can understand using procurement,” she says. “Internally leveraging their services is a positive.”

Popper says most procurement departments do not have expertise in investing or Employee Retirement Income Security Act (ERISA) matters—an innate problem that exists. If a company requires the RFP go through this department, education is needed.

It’s not a matter of procurement working against fiduciary responsibilities, Kelly adds. It’s more of an unknown, she says. “You don’t know what you don’t know,” she says. She recommends that plan fiduciaries get involved at the very beginning.

NEXT: Making sure fiduciaries get what they want.

If procurement is writing the RFP, HR or the benefits manager can act as a subject matter expert, Popper says. For procurement staff that want to do a better job of helping plan fiduciaries get what they want and seek retirement plan education, companies should give them the information to make them better consumers, he adds.

Popper had one client that sent an RFP for advisory services to retirement plan recordkeepers. Kelly said RFPs written by procurement departments that she’s seen had reasonable questions, but some also had other questions you wouldn’t typically see for retirement plan services.

There are resources a plan sponsor can access. For example, Kelly notes that the Retirement Adviser Council has a guide for conducting adviser RFPs that can help build a thorough process. She also says there has been a lot of growth in service providers hiring consultants just to select plan advisers or consultants for plan clients.

According to Kelly, the RFP process can be even more difficult when looking for a recordkeeper. Advisers can help when plan fiduciaries do not have time or expertise. “Using an adviser will ensure a thorough process by an expert,” she says. “It’s suitable best practice.”

Kelly adds that the checks and balances with hiring a retirement plan service provider is not the same as with purchasing furniture or some other supply. “Fiduciaries need to set up goals and key attributes of a vendor that are most important to them, and identify some type of scoring methodology to prioritize that criteria,” she says. “Plan sponsors should keep in mind that their fiduciary responsibilities include identification and selection of service providers.”

Aside from failing to meet fiduciary responsibilities, buying something fiduciaries do not need or want is a problem, Popper adds. “If procurement ends up hiring a broker when what is needed is a fiduciary adviser, they have not solved the problem for their constituent, and it has wasted time and will have to do another RFP,” he says.

Administration June 19, 2015

Non-ERISA 403(b)s Off the Radar

Non-ERISA 403(b)s are not under regulatory scrutiny. Is that a good thing or bad thing?
Reported by

Until regulations passed in 2007, 403(b) plans didn’t fall under the same Employee Retirement Income Security Act (ERISA) regulatory oversight to which 401(k) plans were subjected.

In fact, says Ellie Lowder, tax-exempt and governmental plan consultant at TSA Consulting and Training Services, before the regulations changed, most 403(b) plans were not treated like plans, but simply “arrangements,” in which an employer provided a payroll slot to a provider and then remitted contributions to the provider. Plan sponsors were only required to play a very limited role in plan oversight and administration, she tells PLANSPONSOR.

Get more!  Sign up for PLANSPONSOR newsletters.

However, with the 2007 regulations only three types of 403(b)s are exempted from ERISA scrutiny—church plans (which can elect to be ERISA plans), governmental plans and plans with limited employer involvement (those that fell under the ERISA “safe harbor” for 403(b) plans)—a plus or a minus for plan sponsors, depending on your view.

If anyone is harmed by the absence of new regulations for non-ERISA 403(b)s over such a long time frame, says Carol A. Idone, vice president of business development at Strategic Benefit Services, it’s the participants themselves, and fees are the reason. If the plans were subject to ERISA, she tells PLANSPONSOR, “participants might be able to get better pricing, if it’s a true group plan. [There are] more providers in the market willing to [take on] ERISA plans.” 

NEXT: The risk of becoming an ERISA plan.

Church plans that do not elect to be governed by ERISA and governmental plans will never be ERISA plans, but private-sector plans with limited employer involvement risk becoming ERISA plans. Idone contends some non-ERISA 403(b)s are getting very close to edge of becoming ERISA plans. The Department of Labor (DOL) could well point to some practices in these plans and say, “Based on what you’re doing, this plan should fall under ERISA.” She says she has seen plans take action that are in the best interests of the participants, the very thing that will trip them up. 

The lack of clear-cut guidance to clearly mark the difference between 403(b) plans that do or do not fall under ERISA can make life difficult for plan sponsors, who are told it will be decided on a case-by-case basis. “It comes down to facts and circumstances,” Idone says. “It’s based on what the plan sponsor is doing, how much control the employer is exerting—too much, and it’s an ERISA plan.”

While the guidelines may seem unclear, Idone explains, generally they are: plan sponsors cannot monitor investments or be involved in the hardship and loan approval process. They can provide data on loans, but cannot actively approve the loans or hardship withdrawals. Plan sponsors cannot be involved in fee reviews. They can look at the fees but cannot say that fees are too high: “That is a murky area they have to be aware of,” Idone says.

And when it comes to the vendor arrangements for the plans, she says debate is ongoing: if the plan has just one vendor, does that make it an ERISA plan? Or, if it is an open-architecture investment platform, is it a non-ERISA 403(b)? There are equal opinions to support either side.

NEXT: Confusion when offering both types of 403(b)s.

One particularly thorny situation can arise when a single organization has side-by-side plans: a 403(b) that falls under ERISA and a non-ERISA 403(b). Each plan contains different products—mutual funds in the ERISA-governed plan, and an annuity product in the non-ERISA plan—but both plans use the same recordkeeper.

Since non-ERISA 403(b) plans are prohibited from performing investment reviews, Idone observes, the employer may not exert control over the non-ERISA plan, such as conducting an investment review and deciding to remove an investment. Her firm recommends eliminating the non-ERISA plan, but if the plan sponsor is going to keep it, the firm advises keeping a hands-off approach.

“It’s confusing for everyone,” Idone says, “because they have their eyes closed with the non-ERISA plan and full involvement on the ERISA plan.” During meetings of the plan committee, she says, any discussion of the non-ERISA 403(b) must be held to a strictly general level, lest the plan become subject to ERISA.

When the organization uses the same recordkeeper for both plans, Idone says, nine out of ten participants would be unlikely to know the difference between the two plans, and often participants think of the two plans as one, with the same products.

NEXT: When a non-ERISA 403(b) is the right plan.

One reasonable explanation for offering both an ERISA and non-ERISA plan Idone says she’s heard from an organization’s chief financial officer is that side-by-side offerings give employees a choice. “[But] is it a good choice?” she asks. “There’s no fee disclosure, no independent review of investments. On a plan committee with six or seven members, the members often don’t know the difference.”

Idone, whose business is largely nonprofits and 403(b) plans, concedes that many small to medium-size nonprofits benefit by offering a non-ERISA 403(b) without a match. “It’s not uncommon to have 200 employees eligible for a voluntary-only plan, but only 50 employees participating,” she says. ERISA requires organizations with more than 100 eligibles to conduct a plan audit each year at a cost ranging from $5,000 to $15,000—a significant expense for some plan sponsors.

But, in general, Idone believes the current regulations that govern non-ERISA 403(b)s don’t go far enough, and the plans should have been eliminated. “I can’t imagine the government is going to go too much longer with no reporting being done on these non-ERISA plans,” she says.

However, Lowder believes the plans are useful for some nonprofits, especially with an administrative burden eased by industry support. “Generally speaking, public school districts don’t have HR departments or staff members in these plans with plan expertise,” she points out. “When the regulations first changed, it created some angst and some employers tried to terminate their plans, but the industry worked to put together compliance support for these employers to help them.”

«