What Plan Sponsors Revealed about Retirement Plan RFPs
"For fiduciary reasons, it is recommended that retirement plan sponsors benchmark their providers every three to five years by issuing a request for proposals (RFP) or a request for information (RFI)."
The article sheds light on some candid feedback from a recent survey asking Retirement Plan Sponsors how often they benchmark providers (issuing RFPs/RFIs, surveys, negotiate fees, etc.)
The results were surprising, maybe even a bit frightening. According to the survey, 31% of sponsors don't evaluate as often as they should. Don't worry though, there's light at the end of the "fiduciary tunnel".
Are you one of the 31% falling behind the industry benchmarking standard?
Survey respondents: Newsdash readers polled, 84.8% work in a plan sponsor role, 6.1% advisers/consultants and TPAs/recordkeepers/investment managers, 3% are attorneys.
Nearly half of responding readers (45.7%) reported that the last time their company issued an RFP or RFI just to benchmark a plan provider was in the past one to two years. Twenty percent reported that it was more than 10 years ago.
Slightly more than 17% indicated the last time their company issued an RFP or RFI just to benchmark a plan provider was in the past three to five years, and 5.7% said it was in the past five to 10 years. 'We never have' and 'Don’t know' were each selected by 5.7% of respondents.
Of course, whether or not retirement plans RFPs are even worthwhile is an on-going debate. More importantly though, the article highlighted something that could directly impact a plan sponsor's bottom line:
"More than one-third (34.3%) said their company found something in the RFP or RFI responses that led to a change in providers."
So let's assume RFPs are worth the time and investment (hint: don't do it through Word or Excel). How do you get the most value out of a provider evaluation?
Leveraging Plan Sponsor Feedback
The article quoted many plan sponsors who gave valuable and practical tips for how to get the most out of your RFPs. Below are a few of our favorites:
"Issuing an RFP or RFI is a great way to get current providers to negotiate fees.”
"We did an RFI for benchmarking, which led to the decision to put out a full RFP and switch to a zero-revenue-share model."
"We review everyone associated with our plan every 3 to 5 years, including recordkeeper, consultant, and ERISA attorney.”
"Prior to doing an RFP, we conducted an online survey. Based on the answers received, we elected to conduct an RFP, inviting new providers as well as our current provider. Based on the interview and the findings from the survey, we decided that switching providers would better meet our needs and the needs of our employees."
"We benchmark our provider regularly for services and fees by using surveys, adviser recommendations and generally available information. We would not issue an RFP unless we were serious about making a potential change. We don't do fishing expeditions. It's not fair to the staff who have to do it or the providers responding."
"Benchmarking empowered us to renegotiate fees with our current provider without changing providers.
- RFPs/RFIs can be a great way to negotiate fees
- Plan Sponsors can find better fit providers through RFP/RFI evaluation
- Added fiduciary compliance
- Use concise RFIs for benchmarking
- Don't issue an RFP unless you're serious about making a change
Pitfalls to Avoid
Of course, not all the respondents feedback was a glowing recommendation for RFPs. The top RFP process complaints? Exactly what you'd expect:
- Too time consuming and labor intensive for stakeholders
- Responses don't provide the information we need
- Hard to compare apples to apples across providers
Luckily, there are few best practices you can utilize to avoid these hazards.
Keep it Simple
- First, okay yes we’re a bit biased, but if you didn't know there are RFP software tools that make issuing RFPs easier.
- Keep the number of invited respondents manageable by issuing a broader RFI first then move to a shortlisted RFP based on best fit (target 4-6 for a final RFP).
- Understand the difference between an RFI and a RFP, it will help you get the right information.
- Meet internally with leaders and key stakeholders to define clear requirements based on your organization
- Compare RFP responses across vendors and evaluate what's important.
- For complex RFPs, consider using weighted scoring, and then comparing overall scores.
The more manageable plan sponsors and consultants can make the process, the easier it will be to keep up with benchmark recommendations and comply with fiduciary responsibilities.
You might also like
- Adding Value for Retirement Plan Consultants [web page]
- How to Master Your RFP Process [webinar]
- RFPs Are (Not) Dead [blog]