The Benefit of a Defined Contribution Plan Request for Proposal (RFP)? If You Don’t Ask, You may Never Get Better Service
The Benefit of a Defined Contribution Plan Request for Proposal (RFP)?
Defined contribution (DC) plans are not the highest priority for busy HR and finance managers so if they are satisfied with the service they are receiving, they see little reason to go to RFP (request for proposal). It takes time and it’s hard to get the senior executives together to meet new vendors. But along with the fiduciary duty to make sure that fees are reasonable under ERISA which is only possible by periodically going to market, one plan sponsor attending a TPSU program at The College of NJ was pleasantly surprised by the increased services her plan received for no additional cost.
The benefits administrator at a 300 employee company with two 401k plans realized that it was only prudent to conduct a legitimate search for a record keeper even though she and the company was more than satisfied with their current record keeper. So with the help of their plan advisor, they contacted six companies to respond to an RFP and met with three of them including the incumbent.
One of the big surprises was how cooperative and aggressive their current record keeper was offering much better service at no additional costs. Some plan sponsors might be upset that their current provider does not proactively offer better services or automatically lower prices as the plan assets grow, but even if they did, it’s still prudent for DC plan sponsors to periodically benchmark their providers.
The process for the NJ company only took a few months with the biggest challenge of getting busy senior executives together to meet with providers responding to their RFP.
While using a database to benchmark fees and services or providers and advisors is relatively painless and should be conduct annually for most plans, it can never replace a full RFP which should be conduct every three to five years depending on the size of the plan as well as changes in the market or the company like a merger.
And though it may be harder, the same logic applies to plan advisors many of whom would like their clients to rely on benchmarking – conducted by them. Biased? Many plans go it alone when conducting advisor RFPs but best practices suggest that using a third party is wise whether another advisor (who must disqualify themselves as a candidate), TPA, CPA or attorney. There also are dedicated 3rd parties like InHub which can help.
Because if you don’t ask, you won’t get.
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