In a recent blog post for The Principal Financial Group, Scott Ruba, director of defined benefit retirement plans at The Principal, emphasizes how working with the right provider can be instrumental in helping DB plan sponsors meet the goals and objectives of their plans. Ruba offers a few tips for conducting a DB provider search.
Start with fact finding. Collect all relevant information about the DB plan in order to ensure accurate information is being shared with potential service providers, Ruba suggests.
Janet Kubik, assistant vice president of retirement and investor services, The Principal Financial Group, tells PLANSPONSOR, “Choosing a provider for a defined benefit plan is definitely different than choosing one for a defined contribution plan. For one thing, the DB provider needs to be asking about plan-related data, especially to make sure that the data being given to them is complete.” Another thing providers need to be clear about is what their risk management services are. “Risk management capabilities can vary between providers and it’s important to strike a balance between strategies that are right for the plan versus what is right for the provider,” says the Des Moines-based Kubik.
Sponsors need to be prepared for the fact that providers will likely ask for copies of plan documents, actuarial evaluations for funding status, the investment policy statements and Form 5500 documentation. If a potential provider does not ask for such materials, says Kubik, this may be a sign they are not a good candidate.
Do a plan assessment. Identify the plan’s strengths, weaknesses and priorities, Ruba says. For example, is data management currently a struggle? Is fully funding the plan a priority?
Kubik says, “You need to know what your plan provisions are, including benefits that have been grandfathered into the plan via amendments. You also need to know what the funding status of your plan is. And you need to be aware of the participant demographics, such as how many participants are vested.”
She adds that sponsors need to make sure they know what participant education and services they need, such as participants having access to benefit calculations and communication efforts that make participants understand the importance of DB benefits.
Kubik adds, “It is also important that DB plan sponsors understand the needs of the plan and where they want the plan to go.” Sponsors need to ask themselves questions such as if they need help with risk management, if the quality of their participant data is sufficient, how they handle a participant that may be part of more than one plan, and whether the plan needs to reduce the volatility of its investments.
According to Ruba, after fact finding and assessing their plans, DB plan sponsors should develop a formal request for proposals (RFP). They should be able to get a sample RFP from most DB service providers. Once plan sponsors have narrowed the field of service providers, they should develop a semi-finalist presentation agenda.
He recommends plan sponsors develop a semi-finalist presentation scorecard to more easily identify which provider is likely to be the best fit. Kubik says DB plan sponsors need to identify specific goals and priorities for the plan on the scorecard.
When it comes to convincing DB plan sponsors that they should have a process in place for a selecting a plan provider, Kubik says, “Sponsors need to understand that if they don’t make this a priority, it’s more than likely they will end up with a provider that’s wrong for their needs, which will end up costing the plan more in the long run.”
The Principal offers a guide for the DB provider search process. A copy of “Conducting a Defined Benefit (DB) Plan Provider Search” can be found here.