With the DOL conflict of interest rule focusing on plan advisors and their role as fiduciaries due to take effect April 10, 2017, as well as the growing threat of lawsuits, many companies sponsoring a defined contribution (DC) plan like a 401k or 403b are outsourcing more of their duties to experts like advisors. And though these outsourced fiduciaries are tasked with performing certain duties, it does not relieve a plan sponsor of their fiduciary liability. Like with most tasks under ERISA, there must be a documented prudent process to select and monitor the co-fiduciary which can be difficult without help, especially when selecting a plan advisor. Having a prudent Advisor RFP Process is critical.
A noted advisor explains ways that plan sponsors can improve the success of the Advisor RFP process of selecting an outsourced investment advisor which is becoming more popular for larger plans in what is called an OCIO or Outsourced Chief Investment Officer. Though attractive to small plans, most are ill-equipped to create and implement a prudent RFP. Starting with the goal of the process, and the price the plan is willing to pay, the plan sponsor should understand what activities they want to outsource which can be more than just evaluating fees and performance.
The advisor notes:
Another way to go would have the plan sponsor hire someone to interview its in-house fiduciaries, identify and rank their major concerns and then use that information to create a structured Request for Information or Request for Proposal (“RFP”) that would be distributed to potential review firms. This exercise would entail a short-run expense but could save money in the long-run by ensuring that the plan sponsor and the review team are in sync about expectations and deliverables.
(401kTV partners with Inhub to offer subscribers this service.)
According to the Department of Labor’s website:
“The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA. Prudence focuses on the process for making fiduciary decisions. Therefore, it is wise to document decisions and the basis for those decisions. For instance, in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.”
