Retirement plan vendor search and selection: Key considerations for selecting the right service provider
In deciding whether it’s time to engage a new retirement plan service provider or third-party administrator (TPA), employers should consider the following:
- Has the business experienced problems with its retirement plan that may result in penalties and other unexpected additional expenses?
- Has the business recently performed a retirement plan review to determine if it’s getting the most from its current plan design?
- Could the business benefit from combining multiple retirement plans?
- Is the business paying the right amount for the support that it receives from its current service provider?
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan sponsors to enter into reasonable agreements with plan service providers. It’s important that plan sponsors follow a thorough and well documented due diligence process when selecting a plan service provider. Costs may be considered, but the goal of the selection process shouldn’t be to merely identify the lowest cost provider. While ERISA doesn’t require plan sponsors to go through a proposal process, it’s the best (if not only) way to know whether the fees a plan sponsor is paying are reasonable compared to the market — so a competitive proposal process will be the best “starting point” for most employers.
These key considerations can help employers identify the service provider best suited for them and their retirement plans.
Start the plan service provider selection process with an RFP
The request for proposal (RFP) process helps employers evaluate potential providers and simplify what can become a rigorous and time-consuming effort. It also serves to articulate criteria that may lead to a more standardized pool of responses, potentially making it easier to compare possible providers. Here are some steps employers should follow when starting the RFP process to identify a plan service provider:
- Prepare a detailed RFP that focuses on questions that provide insight into the essential attributes that service providers must possess.
- Review and analyze proposals to prepare a detailed comparison of responses.
- Document the selection process, including the detailed comparison of responses, a fee comparison, finalist presentations, and an explanation supporting the ultimate decision.
Concurrently perform a retirement plan review
Employers that are searching for a retirement plan service provider can also benefit from a thorough review and evaluation of all current retirement plan(s). The primary goal of this process is to evaluate the design and costs associated with each plan and consider whether an alternative design and/or service provider could deliver better results. The review should include an examination of the plan documentation, analysis of the current contribution structure in light of the employer’s overall goals, and consideration of whether an alternative plan design may be a better fit for the company.
When a retirement plan review is performed alongside a plan service provider search, an employer gets a better picture of the benefits currently provided, the costs currently incurred, and the advantages and disadvantages of possible changes. In some cases, when the RFP responses are received and measured against the services and costs associated with a current plan, it may become clear that the best solution may be to continue with the current plan administrator and renegotiate aspects of the current agreement that could be improved.
Seek independent advice
Few businesses have the time or expertise on staff to thoroughly evaluate the effectiveness of their retirement plans and plan service providers. Most employers will benefit significantly from outside support provided by an independent consultant who regularly performs retirement plan reviews and plan service provider searches. Independent consultants typically charge employers a flat rate for a service engagement, as opposed to brokers whose compensation structures may include ongoing commissions or revenue from assets on an ongoing basis.
Most employers will benefit significantly from outside support provided by an independent consultant who regularly performs retirement plan reviews and plan service provider searches.
Most employers will perform benefit plan compliance reviews and plan service provider RFP processes infrequently, while independent consultants who focus in this area serve multiple clients every year and have considerable experience performing these tasks on a regular basis. Reliance on an independent consultant can free up an employer’s internal resources to manage day-to-day operations while the current plans and proposals are reviewed and evaluated by experts who specialize in retirement plans and ERISA standards.
Please contact one of our experts to find out more about how we can assist your business with retirement plan review and design, as well as plan service provider selection.