How to Approach a Recordkeeper RFP: Breaking Down the Process from A to Z

Written by Chris Underwood

Having someone in your corner who understands 401(k) plan administrative requirements and operational compliance will save you time and money, but more importantly it will save you from worrying. Knowing exactly how to find the 401(k) plan recordkeeper that’s right for you is an important part of closing that loop. In this article we will be discussing:
How to begin an RFP
How to break down the responses you receive
How to effectively evaluate the various recordkeepers and ultimately make a prudent fiduciary decision.

As a qualified retirement plan fiduciary, you have likely been told that you are required to benchmark your covered service providers regularly and on-going to ensure that the services provided and fees charged are fair and reasonable. RSG recommends businesses benchmark plan’s fees annually and conduct a more formal Request for Proposal [RFP] every 3 – 5 years. Unfortunately for many plan fiduciaries, the RFP process has become too complex and time consuming and they often forego it all together. You would be amazed at the number of times I ask a business when they last RFP’d their plan’s recordkeeper and they cannot remember, it’s been so long. In this post we will be discussing how to begin an RFP, how to break down the responses you receive, and how to effectively evaluate the various recordkeepers and ultimately make a prudent fiduciary decision.

What is an RFP and Why Does it Matter?

What is an RFP? An RFP, also known as a Request for Proposal, is an opportunity to take your retirement plan out to market and have various service providers bid for an opportunity to win your business. It is important to RFP your plan to ensure that the services you are receiving align with the goals of both your business and the retirement plan. By going out to market you have an opportunity to see the latest and greatest offerings available in the marketplace today. In an industry that continues to see rapid change it is important that, as a fiduciary, you ensure your company’s retirement plan keeps up.

How to Begin an RFP

Starting a Recordkeeper RFP can seem like a daunting project. For clients who are ready to move on an RFP, the first question we undoubtedly receive is where and how do to start. RSG recommends the first place you start is to hire an advisor or retirement plan expert, if you do not have one already. At RSG, project managing the RFP process on behalf of our clients is a part of our standard service model. There are seemingly hundreds of different recordkeepers in the marketplace, each with a different pricing model, services, technology offerings, etc. How do you determine what recordkeepers best meet the needs of your plan? It is the job of the advisor/ retirement plan expert to know the ins and outs of each recordkeeper.

You should work with an advisor to establish 3-5 search criteria that are important to both you as a plan fiduciary as well as your employees who will participate in the retirement plan. Common search criteria can include pricing, payroll support, administrative support, participant tools, technology, service, investment flexibility, etc. Using these criteria, your advisor should be able to identify what recordkeepers best suit your needs. Follow the best practice of including 3 – 5 recordkeepers in the RFP depending on the plan. Once you have identified what recordkeepers you would like to include in the RFP you are ready to send out your requests for proposal…again, with assistance from your advisor. (Are you starting to see a common theme emerge?)

Breaking Down the Responses

You have sent out your requests for proposal and various responses to your request are starting to come on. The first thing you will probably notice is that each recordkeeper’s response looks different from the next. Some are short and concise; others might seem like a novel to read through. You and your advisor will work together to get through the “fluff” and get to the heart of what is important. Your advisor should have extensive experience in reviewing RFP responses and guide your through this process. Depending on their familiarity with the recordkeepers who responded to the RFP, it is likely that they have reviewed similar responses. In reviewing the various responses, we recommend you dig out the 3-5 search criteria outlined at the onset of your search. Using the same criterion will allow you to efficiently sift through the RFP and extract the information most relevant to your plan’s needs.

The other key piece of information you will need to extract from each response is the proposed pricing. Not all recordkeeper use the same pricing model, so this too can be challenging to compare. Some recordkeepers price as a flat dollar based on the number of participants, others price as a percentage of plan assets, and some recordkeepers use a combination of the two. You may also notice that a recordkeeper may offer various levels of pricing depending on what investments are selected.

Ultimately there are three (sometimes four) key numbers to extract:

  1. Recordkeeper fees
  2. Investment fees
  3. Advisor fees
  4. revenue sharing (sometimes)

Knowing what to look for in advance should help you to quickly identify each of these fees.  

Evaluating Each Service Provider

By now you may have noticed that no two recordkeepers are the same. Recordkeepers are like produce, while they are all placed into this “like” category, each is unlikely different. After compiling your proposal responses, you are often left with an array of produce: apples, oranges, lettuce, tomatoes, etc. Creating a level playing field to evaluate each recordkeeper is essential to ensuring you make the best decision for your plan. When compiling RFP responses on behalf of our clients we use a spreadsheet that allows us to pull in all relevant information and cleanly displays it in an easy-to-read format. Be sure to include both quantitative (i.e. pricing) and qualitative (i.e. Recordkeeper services, investment flexibility, etc.) in the analysis. This will allow you to easily see what services you are receiving and at what price.

Services offered by a Recordkeeper should complement those provided by your plan advisor, so that together they provide a cohesive set of services for your business:

  • Administrative support and scope of recordkeeping
  • Compliance support such as plan documents and nondiscrimination testing
  • Investment advice or support – at the plan level and the participant level
  • Fiduciary services (ERISA 3(16) plan administration, ERISA 3(21) investment advice, or ERISA 3(38) investment management)
  • Employee education programs or employee communication support
  • Online account access and phone/email support services
  • A dedicated expert who works with you and is familiar with your business

Upon reviewing the analysis there may be one recordkeeper that stands out, this is your winner. More often there are two to three recordkeepers that rise to the top, these are your finalists. You would request that each finalist deliver a presentation. The presentation allows the finalists to provide a more detailed overview of their services and product offering. Finalist presentations also afford you the opportunity to ask follow-up questions that may have arisen during the initial analysis. Your advisor should participate in the process and act as an advocate on your behalf. Often during the finalist presentations there will be one recordkeeper who stands out above the rest, this is your winner.

By this point you are probably wondering, “why would I ever RFP my plan?!” While it can be a complex process, it does not have to be. By working with an advisor or retirement plan expert, they can project manage the process on your behalf. Remember the importance of establishing key search criteria before you begin the process and do your best to evaluate each recordkeeper on a level playing field. While it might seem daunting, an RFP is a good opportunity to benchmark your plan against the marketplace to see what other product offerings might be available. It is also important to note that just because you RFP your plan does not mean that you are required to make a change. At the end of the RFP process, you might ultimately decide that your current recordkeeper remains the best fit for your plan’s needs.

If you are looking to begin the RFP process and are looking for assistance, I would encourage you to reach out to RSG. We would be happy to assist.