Recordkeeping Survey

State of the Industry

Seek and Find

With the growing array of services being offered, sponsors should stay fixed on plan priorities when conducting an RFP

Fifty-eight percent of sponsors surveyed for the 2021 PLANSPONSOR Defined Contribution (DC) Plan Benchmarking Report said their organization has been using its DC plan recordkeeper for more than seven years, and another 12.3% said it has been more than five years but less than seven. So the timing may be right for these sponsors to take a fresh look at the dynamic recordkeeping marketplace and how it has changed since they last did a request for proposals (RFP).

“The recordkeepers are all moving so fast,” says Brian Hanna, a partner and executive vice president – retirement plans at Everhart Advisors in Dublin, Ohio. “The top recordkeepers are very responsive to the market, and they’re introducing new features and tools almost daily.”

Four plan advisers give their insights, and recommendations, as to five key preliminary steps when preparing to conduct an RFP, below.

Understand Today’s Recordkeeping Dynamics

Fee compression, the need for recordkeepers to invest heavily in technology and ongoing consolidation have all changed the business in the past few years. Some recordkeepers have acquired other recordkeepers, or been acquired, while some financial service companies have outsourced their recordkeeping operations, to focus on their asset management business, says Mark Ray, a retirement plan consultant with Praxis Consulting in Sacramento, California.

“I think we’ll continue to see consolidation at a dramatic rate,” he says. “So you need to understand who is committed to the recordkeeping marketplace and who is outsourcing or leaving that business—and what does that do to service?” It is important to understand the possible impact, such as a reduction in relationship management staffing, he says.

“While there have been mergers in the recordkeeping marketplace, we feel there are still many out there with the tools, technology and people to achieve the results the sponsor wants,” says Alicia Malcolm, a senior vice president and partner in The D’Aiutolo Malcolm Consulting Group at UBS Financial Services Inc. in Buffalo, New York. “But in some cases, there may be technology-integration issues if there’s been a merger or acquisition. And the organizations may not necessarily operate with the same mindset if multiple cultures have been merged.” She says some recordkeepers have cut back relationship management staff and started referring sponsors to a call center to resolve questions or issues, while others may charge a higher fee but provide a dedicated relationship manager for the sponsor and adviser.

Stay Current on Technological Issues

Especially for plan sponsors less accustomed to performing RFPs, it is important to keep in mind the technological issues, such as cybersecurity, at the forefront for recordkeeping today.

With cybersecurity, go beyond asking about the basics of what a recordkeeper does to prevent attacks, suggests Jim Sampson, director, retirement advisory services at Hilb Group Retirement Services in Cranston, Rhode Island. “It’s also an issue of: Who’s got a guarantee to reimburse a participant if there is a loss, and what do the guarantees entail?” he says. “It’s something I think too few sponsors are asking about now.”

The ability of recordkeepers’ systems to fully communicate with payroll providers’ systems also has become an issue in current searches, Hanna says. Sponsors increasingly look for 360-degree integration, he says. They want not just 180 degrees, where their payroll provider’s system can speak to the recordkeeper’s system, but the two systems communicating seamlessly. “The data is transmitted directly from the recordkeeper’s system to the payroll provider’s without the employer having to touch it,” he explains. “There’s no better way for a sponsor to create efficiencies, and it’s also an opportunity to reduce errors, which goes back to the desire for fiduciary protection.”

And recordkeepers increasingly can incorporate add-ons such as financial wellness elements to their platform and participant websites, Ray says. “The flexibility has grown dramatically in these service packages. It’s just a question of, what is important to you and your participants?”

Recordkeepers’ current capabilities vary on the integration of programs for emergency savings, student loan repayment and health savings accounts (HSAs), Sampson says. “More-progressive sponsors are starting to ask, ‘What’s embedded in the participant website from a financial wellness standpoint? And what other programs can we tie in to the recordkeeper’s platform such as emergency savings accounts?’” he says. “The ability to integrate HSAs on a recordkeeping platform is a big one now. More sponsors are asking, ‘Can our participants [access] both [such] accounts on one website?’”

Identify the Most Important Criteria

An RFP covers substantial ground, so before starting the process, it helps to narrow the criteria to what is most important. “If a sponsor is doing a search to resolve issues, we want to make sure we understand what those issues are,” Malcolm says. “We want to help the committee identify: What are your main ‘pain points’? Is it that your participants are having trouble navigating the recordkeeper’s site? Is it day-to-day operational issues? Is it the service you’re getting from the recordkeeper’s relationship manager?”

Sampson encourages committees to identify upfront the two or three issues they think are most crucial in the search. It works better, he has found, to start the committee discussion with a concise list of potential key issues, rather than just asking members to give their personal opinions about what they feel the issues are. The potential priorities list could include variables such as technology, fees, investment flexibility and the financial wellness program. “It’s important to find out at the beginning what issues are more important than others.” he says.

In surveying today’s technology-focused recordkeeping marketplace, committees often overlook the importance of the “human factor,” Hanna says. “When you have such a competitive landscape, and so much of recordkeeping is now technology-driven, the biggest differentiator often can be the relationship manager or managing director who would be assigned to work with that particular sponsor,” he says.

So when comparing recordkeepers, it is crucial to consider the number of plans your potential relationship manager already serves. “If [he] is assigned to 15 to 20 plans, then you likely can expect a more-consultative relationship and for the relationship manager to be more proactive,” Hanna says. “If the [person] is assigned to 70 or 80 plans, then you can expect more-reactive and less-consultative service.”

Know the Fee Proposal’s Assumptions

Recordkeepers’ technology costs have steepened, and at a time when fees for their core administrative work have compressed; that is changing the pricing models significantly, Ray says. Often, proprietary asset management fees are baked into the proposal. A recordkeeper’s fee proposal may stipulate that the plan would need to have at least a minimum threshold percentage of its assets—50%—in the provider’s mutual funds, he says. It is also not unusual to see a proposal requiring the use of that recordkeeper’s proprietary target-date fund (TDF) family and/or stable value fund, as a large percentage of a plan’s assets typically are in those investments, he notes.

Recordkeepers are integrating more of their own products and services, such as custom target-date funds, on their platform, Hanna says. “As we see these new products be introduced, we need to have a keen eye on what assumptions are being used when a recordkeeper provides its pricing quote to a plan,” he says. For example, a recordkeeper’s fee quote may be dependent on re-enrolling a plan’s participants into the provider’s TDF family. “You may find that it’s not ‘apples to apples’ when you try to make comparisons between recordkeepers’ bids,” he adds.

Plan fiduciaries need to understand the potential risks in using a recordkeeper’s proprietary mutual funds, Sampson says. “It’s important to look at, what are the discounts available for using a proprietary fund or a menu of funds, and are those investments appropriate for your plan?” he says. “It’s one thing to use a proprietary fund just because you’re getting a discount on the recordkeeping fee. It’s another to get a discount for using a proprietary fund that can stand alone on its own merits. So you need to ask yourself, ‘Would we use this fund independent of that fee concession?’ If you would, then it’s OK to take the fee concession.”

Prioritize Key Issues and Score Responses

Malcolm and her UBS colleagues use a standard scoring system that initially synthesizes the RFP responses into a “scorecard” summary of about 40 key data points. “Then we go back to our initial dialogue about that plan’s current main pain points. We tell the committee, ‘Now, let’s weight your pain points.’”

If a committee has a handful of key issues it wants to resolve, it can assign a percentage value, out of 100%, to each, to help analyze the responses and decide on finalists. She suggests that, after weighting the key pain points, the committee can rate the recordkeepers on how they would handle each, from 1 to 3: 1 means the recordkeeper failed to address the issue or addressed it inadequately; 2 means the recordkeeper did an OK job of explaining how it would resolve that issue; and 3 means the recordkeeper did a good job.

Before meeting with finalist recordkeepers, Malcolm says, it helps to review the key priorities of the search. “Payroll integration is an important issue for many sponsors now, but [it’s] boring to talk about. So oftentimes in these meetings, the recordkeeper’s salespeople will focus more on showing flashy technology,” she says. “I always remind clients, ‘The salespeople are really good, but let’s not let the sales process blur what’s important to you. Let’s keep in mind, what are they saying about what they’re going to do to help you fix your plan’s problems?’” —Judy Ward