Investment
Consultant
Bridgebay
Financial, Inc.
It is a good fiduciary practice to conduct a
periodic review of the DC plan service provider to ensure that the participant
assets are well-protected and tracked accurately. This should include a review of financials
and SSAE 16 (internal control audits) annually.
If the plan service provider has not been reviewed in a long period of
time, or the plan has grown or changed dramatically in the number of
participants, need for additional services and asset size, it is a good
fiduciary practice to conduct a due diligence review which may best be
performed through a request for proposal (RFP) for plan services.
Define the Objectives of the RFP
The detail and customization of the RFP will be
determined by the key objectives of the RFP.
Some typical reasons for sending out a RFP include:
1)
Benchmarking to compare the
current provider's fees and services in response to ERISA 408(b)(2)
2)
Improving plan efficiency
and delivery of services to the plan and its participants
3)
Streamlining the
administration of the plan through improved technology and automation
4)
Expanding or enhancing the
investment choices, advice, asset allocation solutions
5)
Improving participant
communications, education and participation rates
6)
Seeking a change in
provider's relationship team, response time and expertise
Establish Criteria
The plan sponsor should establish specific metrics
to evaluate the providers to ensure that the key issues are addressed. Any specific restrictions or contract
stipulations that are non-starters should be identified at the onset. When crafting the RFP, it is important for a
plan sponsor to identify their organization's unique priorities, objectives and
preferences. Some criteria may include
conversion timeline, minimum performance standards, fees, call center and
on-line participant access, investment options and organizational flexibility. A client service-oriented provider will be willing
and able to tailor its services to the
plan sponsor's specific needs.
Plan Information
Make the responses specific and relevant to your
plan by providing sufficient information and data about the plan features,
asset mix, cash flows, employee demographics, and current investment
line-up. Include any new services
desired and their importance to the overall decision.
Evaluate the RFP Responses
Quantitative criteria include sponsor and
participant service measures, plan use data, fund performance, expenses and
timing. These tend to be easy to compare
and understand, though they tell only a fraction of the provider’s full
story. Financial stability in the wake
of the financial crisis is critical to continuously offering high quality plan
services. Financial strength ensures
high quality personnel, up-to-date enhancements to systems and improvements in
compliance and delivery of participant services.
The Committee should be clear on what aspects of
the RFP are critical to the selection of a qualified service provider based on
the criteria established prior to issuing the RFP. Developing a scorecard is a helpful tool when
evaluating RFP responses and will streamline the process. The evaluation should be presented to the
committee and finalists selected based on the results.
Education
Education should be accessible through multiple
channels such as paper, webinar, in-person, on-demand information, and live
representatives. Call centers need
qualified, expert representative that are responsive to participant
requests. There should be a broad menu
of education media including user-friendly on-line tools, retirement
calculators, retirement income education, publications, newsletters, investment
information, on-demand educational tools and in-person seminars. Beware of marketing material masquerading as
investment education.
Compliance
Compliance expertise has taken a central role in
this time of increased regulations. Providers should demonstrate specific cases
where they provided solutions to plan sponsors to meet new regulatory
requirements. Strong providers will have
updated technological tools, operational procedures and legal expertise that
ensure the plan is compliant with the changing regulatory landscape. Plan design recommendations from providers
are also very useful in a rapidly evolving regulatory environment. Plan sponsors should understand the
provider's compliance resolution process and how proactive they are in ensuring
the plan remains in compliance.
Finals Presentations
Once the finalists have been determined, they
should be notified and sent an agenda for the presenters to follow. The absence of a detailed agenda will allow
the provider with the best showmanship, and not necessarily the best product,
to win the business. The key client service and relationship personnel that
will actually be handling the account on a day-to-day basis should be present
at the finals presentation. The finalist in-person presentations should
highlight the relationship services. Using a common agenda with each finalist
will also make is easier to make truly apples-to-apples comparisons. The way some firms answer certain questions
may actually point out deficiencies in other firms. A knowledgeable and experienced retirement
plan consultant can highlight these differences and explain their implications
on the plan sponsor's plan.
