(b)lines Ask the Experts – Why Conduct an RFP for a Recordkeeper?

Why should I conduct a request for proposals (RFP) for a recordkeeper for my retirement plan?”

Michael A. Webb, vice president, Cammack Retirement Group, answers:        

This is a common question among retirement plan sponsors, as the request for proposal process can involve a lot of time and expense, both of which are at a premium in human resources and other departments involved with the retirement plan, where budgets and staff are often shrinking. However, the regular completion of an RFP process (as often as every three to five years or under another reasonable period based on the specific plan) is an essential component of the due diligence process. The reasons include, but are not limited to, the following:

1)      Fees/Services: The RFP is arguably the best method of obtaining a recordkeeper’s best combination of fees and services. The reason for this statement is that recordkeepers generally provide their lowest fees and most robust services to new clients (or existing clients who have decided to conduct an RFP) rather than as a result of direct negotiation with the recordkeeper, although as the market evolves, recordkeepers continue to show different levels of flexibility in non-RFP situations.

2)      Benchmarking: As discussed in a 2014 Ask the Experts Column, it can be difficult to benchmark fees to determine whether the cost of services for Employee Retirement Income Security Act (ERISA) plans is reasonable, as mandated by the Department of Labor. By receiving competitive bids for multiple recordkeepers for your retirement plan, the RFP serves as the most definitive benchmarking process of which the Experts are aware.

3)      Plan Size: since recordkeepers often specialize in certain market segments where plan asset size is a significant variable, a plan can often outgrow its curren recordkeeper’s “sweet spot,” requiring services that the incumbent recordkeeper can no longer provide (or provide in an efficient fashion).

4)      Voluntary Plan Participation: For plans that do not utilize automatic enrollment for all employees, the implementation that results from an RFP process (even if the incumbent recordkeeper is retained), generates a level of participant interest that frequently results in a significant increase in voluntary participation. Most non-auto-enrolled retirement plans (particularly 403(b) plans) could benefit from increased participation, so this participation increase is often viewed as a beneficial ancillary effect of an RFP.

Thus, despite the administrative effort and expense, it is considered to be best practice to conduct an RFP process on a regular basis.

Thank you for your question! And, as a reminder to all readers, Ask the Experts continues throughout the summer, so any and all reader questions received during this time period are greatly appreciated!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.