Investment Consultant
Bridgebay Financial, Inc.
Selecting and effectively monitoring defined
contribution plan service providers is an essential fiduciary duty of the plan
sponsor which influences retirement outcomes for its employees. The plan sponsor or Committee overseeing the
defined contribution plan shares this responsibility for the prudent management
of the plan for the benefit of the participants.
Fiduciary Reasons for Conducting a Provider
RFP
In the ERISA Section 408(b)(2) fee disclosure
rules, the Department of Labor (DOL) assumes that a prudent plan sponsor has a
fiduciary duty to establish and follow a formal review process at reasonable
intervals, generally three to five years, to ensure the caliber of the selected
DC provider and that the services are being delivered at a
"reasonable" cost. Typically,
a plan sponsor can conduct this due diligence review by issuing a service
provider RFP.
Types of Service Providers
There are a full range of DC plan service providers
that are either independent or affiliated with different types of institutions
that include: TPAs (third party
administrators) or independent recordkeepers, mutual fund companies, insurance
companies, banks, and brokerage firms.
Bundled or Open Architecture
In order to properly operate a qualified DC plan,
an array of services are necessary.
Those services include recordkeeping administration, trustee/custodian
services, compliance testing, investments, legal update of plan documents,
government reporting and participant education.
Bundled service providers offer the full spectrum of services necessary
to operate a qualified plan under one contractual arrangement. A bundled provider includes plan administration,
recordkeeping, trustee, legal, investments, participant communication and
education. Defined contribution plans, such as 401(k), 403(b) and 457, that are
open architecture may use multiple service providers that perform each role. In such a situation, the plan sponsor would
issue RFPs for each of the various services.
Multi-Purpose RFP
A well-documented due diligence review enables plan
sponsors to fulfill their fiduciary duty to prudently monitor their service
plan providers. A multi-purpose RFP
covers the services of key providers necessary to operate a 401(k) or 403(b)
retirement plan. The design of the
questionnaire is the first step in the evaluation process when benchmarking
providers.
The process starts with the Request For Proposal
(RFP) and should elicit information about the provider’s services, expertise,
client commitment and compliance experience with clearly detailed costs.
Independent Benchmarking
The RFP process can be a benchmarking tool to
assess the quality of the plan’s services, potential upgrades to the plan and
serve as a resource to evaluate the reasonableness of plan fees. Periodic, unbiased benchmarking documents the
plan sponsor's fiduciary process to monitor the quality of plan services and
fees.
