Below continues part two in our series, "Making Sure 401(k) & 403(b) Fees are "Necessary" & "Reasonable". If you missed out last week, be sure to check out Part One. And don't miss Part Three - subscribe in the sidebar!
You should also budget another four-to-six weeks for your review of the responses. It’s time consuming! And, since all of the responses on pricing in particular will almost certainly not be uniform or completely clear, you’ll need time to analyze, ask questions and assess.
You should create a master list of items you want to see addressed by each respondent. This can, essentially, be the items in your RFP. You’ll want to create a fairly detailed spreadsheet to analyze the fee component of the proposals. We suggest you have categories for at least the following items:
Conversion or start-up services
- Document review, preparation and so forth
- Onsite or other conversion/enrollment-related communications
- Required Revenue without proprietary funds, services and/or revenue sharing
- Annual plan administration fees, including document, notice, reporting, testing and filing fees
- Annual recordkeeping fees
- Annual trustee fees
- Annual custody fees
- Estimated annual participant expense expressed in dollars per participant using current participants-with-a-balance count
- Estimated annual participant expense expressed as a percentage of assets per current average account balance
- Estimated annual participant expense expressed in dollars per participant over five years assuming growth of both participants and plan assets by a reasonable amount each year
- Estimated annual participant expense expressed as a percentage of plan assets over five years assuming growth of both participants and plan assets by a reasonable amount each year
- De-conversion/termination expense
- Onsite and/or web-conference fees
- Participant-level advice including models
- Participant-level managed account fees
- Self-directed brokerage fees
- Loan set-up
- Loan maintenance
- Distribution-related fees
- Periodic payment fees
- Return of excess contribution fees
- QDRO-related fees
While reviewing the responses you will, of course, be making detailed notes. Questions and points needing clarification will arise. Once you’ve finished the review and compiled your list of items, you should contact each firm for a response. Typically one week is enough time to allow.
This will also be the time to give them an opportunity to modify their service and fee proposal. We do this by providing every respondent with a summary of how their offering fits within the range of responses received in terms of services that are included in the basic pricing as well as additional costs such as travel or fees for onsite meetings. We find that seeing where they are competitively can be a strong motivator for improvement, often significant improvement. We further recommend you make clear that, should they choose to improve their offer, you expect this to be the best and final offer. One chance is all they get.
Candidate selection and interviews: Semi-finalist round
Once you’ve gotten responses to your questions (as well as any pricing adjustments), you should be ready to make your selection of firms you want to interview. We recommend no more than five firms be interviewed. The interviews should be conducted within a relatively compressed timeframe, say a couple of days within the same week.
When we conduct RFPs, we use a two-step approach to candidate interviews. The first is a series of one hour long semi-finalist interviews using a web-conference format. This step allows you to begin interacting directly with the vendors’ sales and service teams, to engage in an overview discussion of their service offering, to get a demonstration of their online experience for both plan sponsors and participants and, importantly, help to focus the discussion for when you will sit down face-to-face with some of them.
When inviting your candidates to the web-conference, have them set up the conference bridge. This reduces the chances of a technical glitch fouling up the web-conference. We also give the presenters the instruction to prepare as if they have only 40 minutes. This will allow you to ask questions and have interaction without being pressed for time.
You should also be sure to clearly instruct them to have the person who will be your primary service contact as part of the presentation team. Many firms use a team approach to client service, led by a relationship manager (titles vary but relationship manager (RM) usually is clear enough so they know who you mean). Often the RM is the team coordinator and your advocate within the firm so it’s critical you begin to engage with him or her at the earliest opportunity.
If you have a specific set of goals or services you are particularly focused on, this is the time to communicate those to the candidates. They should be able to thoroughly address them during your initial meeting. Naturally, if you need anything clarified or explained in more detail, this is also the time to provide that information and ask that it be addressed.
Once you have selected your semi-finalist candidates, it’s fair to inform the ones not selected of your decision. We typically do this via email and invite a follow-up conversation so they’ll understand the reason they haven’t advanced. You may not want to go that far because, as we have experienced, some firms may use this as an opportunity to reopen the opportunity by modifying their terms or trying to resell themselves. If you’ve followed our review process recommendation of contacting firms that have an attractive offering but who’s pricing, for example, is out of line as described above, you will have given them the opportunity to put their best case forward and need not reconsider.
Once you’ve received their responses you will, likely, be able to select your finalists. We recommend no more than three firms be invited to meet with you. Once they have been selected, notify the firms not selected and move on.
Ed Lynch is founder and CEO of FPG. He has worked with ERISA-qualified plan sponsors and designated fiduciaries in most aspects of plan development and maintenance since the early 1980s. Ed founded FPG with the mission to be a leader in the field of employee benefits and the most trusted source of information and evaluation in the retirement plan industry.