403(b) Summit: So You Want to Do an RFP?

However, that is not the only reason to conduct a search or a request for proposal (RFP), according to panelists speaking at PLANSPONSOR’s 403(b) Summit in Amelia Island, Florida. A search can also take place when a plan sponsor is receiving bad service, or simply as a way to benchmark a plan’s services or fees, said panelist Jeb Graham, retirement plan consultant with CAPTRUST.

Oftentimes the RFP process begins with a basic request for information (RFI), said Peter Margiotta, National Sales Director-National Account Markets at Great West Life. Many sponsors’ RFIs focus on price and fee disclosure, he noted. Many sponsors come to Great-West directly, and without an intermediary, Margiotta added.

According to Graham, there are two approaches to the RFP: sponsors can complete it internally or can outsource it to an independent third party. Plan sponsors who go on their own, said Margiotta, can choose to use the basic 401(k) RFP outline available through the Society of Professional Administrators and Record Keepers (SPARK) for reference.

When completing the RFP on their own, plan sponsors must decide what providers to send it to, and defining the universe of providers can be the biggest hurdle for many sponsors, explained Michael Kozemchack, Managing Director at Institutional Investment Consulting. One issue a plan sponsor might run into if creating their own RFP is that many providers, depending on the plan size, will not respond to a custom RFP, he commented.

The biggest consideration in deciding what avenue to pursue is whether or not the sponsor has the resources and expertise about the retirement plan landscape in house to be able to complete the potentially months-long process. Ensuring that people are available for the duration of the project is vital, Graham said.

When it comes to expertise, “you don’t know what you don’t know,” added Kozemchak.

In order to create the proper RFP, sponsors or the search committee need to understand plan design. Plan providers need to have all the necessary facts and circumstances about the plan when responding to the RFP. A very helpful part of the RFP process, according to Margiotta, is a bidders’ call, during which all those who are responding to the RFP are able to get on the phone and ask the sponsor questions about the plan.

Hiring Help

About half, or fewer, of the RFPs started by plan sponsors do not get completed, panelists noted. Therefore, if an evaluation of the resources and expertise makes a sponsor realize they need help, there are those in the industry, such as advisers or consultants, who can help.

Before hiring an adviser or consultant, plan sponsors should know in what areas they are deficient, and what services are important to them. Sponsors should interview several advisers or consultants and compare their qualifications for helping in the RFP process, Graham said.

Kozemchak said sponsors can ask during the interviews: How many searches have you run for plans like ours?; What vendors do you use?; and What vendors have won the most plans in the last 12 months. Those questions let a sponsor get a sense of the adviser or consultant's expertise and level of independence, he added. If an adviser says he uses a long list of vendors, but has only awarded searches to a handful, that adviser might not be so independent, according to Kozemchak.

Evaluating the Responses

Once the RFP is out to providers and the bidders' call is completed, sponsors have to evaluate what is returned to them. Margiotta said, when plan sponsors compare the responses they should pinpoint what is important to their particular plans. Many of the basic services can be similar, so it is important that a sponsor has decided ahead of time what specifics will be the determination of who wins the business.

Well-drafted RFPs explicitly state their goals up front, Margiotta added, such as to increase participation or lower fees. If sponsors offer in the RFP what will be the criteria for selection and retention of a new provider, providers will be better equipped to respond to the RFP, Graham said.