Why will Retirement Plan RFPs never die?

RFPsThe simple answer: because it is the only prudent way to hire and evaluate service providers.  Period.

by: Ariana Amplo, The Founder of InHub –  There is not one attorney, ERISA or otherwise, that would tell a retirement plan sponsor that documenting a hiring decision is a bad idea (unless you knew you were hiring someone completely unqualified – which is its own colossal problem).  In fact, they will most likely tell you that you should not only hire through a prudent, documented process, but that you should also evaluate the service-providers you are happy with every 3-5 years through that same process to confirm and prove fees/services are still in-line with the current market place.

The process that offers this important paper trail of due diligence and keeps this valuable exercise organized is an RFP (a Request for Proposal).  Some people may refer to it as a Request for Information (RFI) or a Request for Pricing.  A rose by any other name.  At the most basic level it includes a questionnaire which is sent to candidates (hopefully qualified ones), and information/proposals/pricing are received in return and reviewed.  The process is often followed by in-person meetings with a select number of ‘finalists’ and ultimately a winner is determined (either a new firm, or the incumbent).  That’s it.

One might conclude from this statement that it is imprudent to hire an important service provider outside of an RFP – and to that, we say yes.  Simply put, it is extremely challenging to defend a hiring decision, when you don’t have a record of how and why that decision was made.

Who are the service providers to your Retirement Plan whose hire and evaluation should be supported by an RFP paper trail?  The Investment Consultant (also called a Plan Advisor), the Record keeper/Administrator/TPA, the Actuary (if you have a DB plan), and the Auditor.  Gone are the days of hiring the CEOs brother-in-law or golf buddy – these are serious and critical hires, and there is a legal responsibility to run them in a professional and judicious manner.

Some committees are scarred of the word RFP because they’ve had a bad experience.  Things have changed – it doesn’t have to be as complicated as some have made it to be, there are resources to help (see: InHub) and a majority of the process can now be streamlined online.  An RFP can be as simple as asking 15 questions to 3 candidates, or as complex as 200 questions to 13 candidates – it’s important for each committee to determine ‘which’ RFP is right for them.  Not going through this prudent process, is really no longer an option.  And why would someone want an RFP process to be die? It keeps fees reasonable, ensures services are up-to-date, provides education to a committee, and documents ongoing due diligence.  It’s a win/win.

 

Not sure where to start?  If you haven’t done an Advisor RFP in the last 3-5 years, put it on the agenda immediately.  Once that decision is made, the winning firm should be able to help you with the other RFPs.  Need help?  Check out the Advisor RFP tab on 401ktv.com or Insights for a Successful Advisor RFP.

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