Considering the costs associated with maintaining a retirement plan, the significance of retirement plan benefits to employees, and the increasing frequency of litigation related to these benefits, selecting the right retirement plan vendor is one of the most important decisions an employer will make as a fiduciary. With so many factors at play, it’s crucial that employers understand how to best navigate the vendor selection process to find a provider best suited to their organization.
When deciding whether it’s time to engage a new retirement plan vendor or third-party administrator (TPA), employers should consider the following:
- Has the business experienced problems with its retirement plan that may result in penalties and other unexpected additional expenses?
- Has the business recently performed a retirement plan review to determine if it’s getting the most from its current plan design?
- Could the business benefit from combining multiple retirement plans?
- Is the business paying the right amount for the support that it receives from its current service provider?
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors to enter into reasonable agreements with vendors. It’s important that plan sponsors follow a thorough and well-documented due diligence process when selecting a vendor. Costs may be considered, but the goal of the selection process shouldn’t be to merely identify the lowest cost provider. While ERISA doesn’t require plan sponsors to go through a proposal process, it’s the best (if not only) way to know whether the fees a plan sponsor is paying are reasonable compared to the market — so a competitive proposal process will be the best “starting point” for most employers.
These key considerations can help employers identify the vendor best suited for them and their retirement plans.
Start the vendor selection process with an RFP
The request for proposal (RFP) process helps employers evaluate potential retirement plan vendors and simplify what can become a rigorous and time-consuming effort. It also serves to articulate criteria that may lead to a more standardized pool of responses, potentially making it easier to compare possible providers. Here are some steps employers should follow when starting the RFP process to identify a plan vendor:
- Prepare a detailed RFP that focuses on questions that provide insight into the essential attributes that service providers must possess.
- Review and analyze proposals to prepare a detailed comparison of responses.
- Document the selection process, including the detailed comparison of responses, a fee comparison, finalist presentations, and an explanation supporting the ultimate decision.
Concurrently perform a retirement plan review
Employers that are searching for a retirement plan vendor can also benefit from a thorough review and evaluation of all current retirement plan(s). The primary goal of this process is to evaluate the design and costs associated with each plan and consider whether an alternative design and/or vendor could deliver better results. The review should include an examination of the plan documentation, analysis of the current contribution structure in light of the employer’s overall goals, and consideration of whether an alternative plan design may be a better fit for the company.
When a retirement plan review is performed alongside a plan service provider search, an employer gets a better picture of the benefits currently provided, the costs currently incurred, and the advantages and disadvantages of possible changes. In some cases, when the RFP responses are received and measured against the services and costs associated with a current plan, it may become clear that the best solution may be to continue with the current vendor and renegotiate aspects of the current agreement that could be improved.
Seek independent advice
Few businesses have the time or expertise on staff to thoroughly evaluate the effectiveness of their retirement plans and vendors. Most employers will benefit significantly from outside support provided by an independent consultant who regularly performs retirement plan reviews and vendor searches. Independent consultants typically charge employers a flat rate for a service engagement, as opposed to brokers whose compensation structures may include ongoing commissions or revenue from assets on an ongoing basis.
Most employers will perform benefit plan compliance reviews and vendor RFP processes infrequently, while independent consultants who focus in this area serve multiple clients every year and have considerable experience performing these tasks on a regular basis. Reliance on an independent consultant can free up an employer’s internal resources to manage day-to-day operations while the current plans and proposals are reviewed and evaluated by experts who specialize in employee retirement plans and ERISA standards.
Contact our authors
Need guidance on performing a retirement plan review and/or selecting a vendor for your organization’s retirement plan? You’re in the right place. Reach out to a member of our team — we’re here to help.
