At its peak in the early 1990s, there were over 2,000 recordkeepers serving retirement plans - today there are fewer than 60. In light of service-provider profit pressures from declining margins, sponsor fee sensitivity caused by litigation and Department of Labor's fee-disclosure regulations, finding the right plan vendor for the right price can be a challenge.
This is where Wayne Bogosian and Greg Limoges come in. They've made careers of wading through ERISA's "prudent expert" rule by helping companies choose the right retirement plan provider.
Every few years, they say, 401(k) plan sponsors should put their plan out to bid. "Every one of you should think about going to bid," Bogosian, president and managing director of The PFE Group, told attendees in a breakout session at EBN's 24th annual Benefits Forum & Expo. Like housing, he pointed out, the shrinking list of qualified providers has created a buyers' market - one that plan sponsors can take advantage of if they conduct a savvy search.
Steps for conducting a search
After deciding to go to bid with their plan, Bogosian and Limoges, vice president of global compensation and benefits at Forrester Research, said sponsors need to follow four steps in conducting a provider search:
1. Decide whether to go to market solo or hire a consultant. Document current operations and cost, define required services and project expected benefits so that expectations are clear.
"It's important to [involve] the players who have a vested interest, even if they're only tangible to the core HR people," Bogosian said. "The head of benefits will rarely do battle with the CFO, so it's good to have a third-party person who is objective. It's important to document, document, document before you go forward."
2. Distribute an RFP. Analyze and validate responders' ability to achieve expected benefits.
3. Select finalists. Conduct site visits and negotiate final terms.
"As you're creating your scorecard around these services, what's most important is what services are being delivered," Bogosian said.
4. Execute. Develop an implementation plan, implement and communicate.
"Don't take their word that it's going to be a smooth implementation; drop a detailed schedule and have them put fees at risk. It's quite complex from a technical standpoint, and it's important that you and your employees are clearly communicated to," Bogosian said.
Selection criteria
The experts also recommend these criteria in selecting a new plan provider:
1. Retirement plan administration. The provider an employer ultimately selects should make plan administration its core competency, Bogosian and Limoges advised.
2. Plans accommodated. Sponsors need to ensure the provider won't be overextended among too many clients.
3. Fixed per-account pricing by plan.
4. Proprietary investment requirement. Employers will want to know that their provider can provide adequate flexibility.
5. Particpant experience. "You're looking at the technology platform that each provider can give you, for you as a plan sponsor and for your participants," said Limoges.
6. Plan sponsor experience. Bottom line, employers will need to balance cost vs. value.
Six tips for staying out of court
When conducting the search, employers must show their due diligence to avoid potential lawsuits. "There's an old saying: 'Don't put anything in writing if you don't want to get sued.' But [that] doesn't work in the world of ERISA," Limoges said. "It's not a good hook to hang your hat on, and in fact, that hook will hang you." To steer clear of the courtroom, Bogosian and Limoges recommended:
1. Finalizing service and fee submissions.
2. Conducting provider site visits.
3. Refining contract terms and performance standards.
4. Recommending the vendor to a fiduciary committee.
5. Checking references.
6. Negotiating fees.
