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Part Three: Making Sure 401(k) & 403(b) Fees are “Necessary” & “Reasonable”

This is the third and final installment of the series. Be sure to read Part One and Part Two if you've missed them.

Candidate selection and interviews: Finalist round

We have found that 1½ hours is an ideal meeting length. Less than that tends to inhibit your ability to ask whatever questions you want. This timeframe allows for significant interaction while still allowing the presenters to cover all the appropriate information you need. As we suggested for the semi-final round, in order not to risk running out of time, instruct each finalist to prepare as if they have only one hour.

Our goal when we manage an RFP process is that, walking into the final interviews, the employer/plan sponsor will feel completely confident that every firm they are meeting with can do an excellent job for them. The goal of the finals, therefore, is to identify the one that is the best fit for them. If you run your own RFP process, you should feel just a confident that you are making the best choice you can make. To do that, you’ll want to have both a quantitative and a qualitative evaluation structure.

Over our more than 30 years of experience, we have developed a fifteen point scoring system that all of our clients have found extremely helpful in evaluating providers and successfully selecting a recordkeeper, plan administrator, advisor or other service provider. Some use it for only the final round of interviews; some for both the semi-finals and finals. Often if the scoring system is used for the semi-finals we will modify some or all criteria, perhaps also reducing the number of items because the focus for the finals has sharpened. The key is that this approach adds an objectivity that cannot be as easily affected by the really skilled sales people you’ll be talking with and listening to.

We have yet to have a client say this wasn’t a tremendously helpful tool. Use it!

Each evaluator scores independently. This is critical to getting a clear sense of the preferences of each member of the committee. It’s also critical that the same criteria and weight be used with each recordkeeper interviewed. We have found a five-point scoring range works for most plan sponsors. Some opt for a ten-point range to allow for greater discrimination. Either works.

When completed a scoring sheet might look like this:

Once each member has completed their scoring independently the weighted scores (Score x Weight) are tabulated and averaged for each firm interviewed.

For a three-person selection committee the combined average weighted scoring for a particular firm might look like this:

The “Total” score is arrived at by adding all scores and dividing by 10. You could, of course, just use the total. We do it this way because we have found that clients prefer working with the smaller numbers.

Selection, References

It’s very likely that by the time you’ve finished with interviews, scoring and group discussion your choice will have emerged. If it hasn’t, identify what further information you need to get to a decision. Follow-up by sending your questions to the firms you are still considering with the explanation that you are continuing to deliberate and need items clarified. This is also the time to ask for references.

Reference checking is part of the due diligence process. It can also help to reinforce impressions you may have gotten from the meetings. It is appropriate to stipulate that the references work with the service team they are assigning to you. We also recommend you only tell them they are still being considered not that they are your choice. Think of the entire process as a negotiation. You want to maintain your leverage right up to the end of the process.

You may be tempted to restrict the references to companies or organizations “like us” meaning in the same industry and of the same size in terms of participants as well as assets. We don’t encourage this approach. Most recordkeepers do not segment their service teams by industry. We have found that the most important thing is how the team will work with you not whether they work with other firms like yours.

The blocking and tackling of recordkeeping and plan administration applies regardless of your type of business and size. If you used our list of recordkeepers to select the firms to receive the RFP, you know they can handle your plan. Their service team should work well with you if there’s a good fit in terms of personality and culture. Once through this stage you should be ready to make your choice and move into the protracted conversion phase.

Conversion (or start-up)

Plan on your conversion taking 90 and 120 days from the date on which you sign on the dotted line, usually a letter of intent, until assets move. (Start-ups can be done in slightly less time but, due to notice requirements and other matters assume no less than 60 days for a plan to start receiving contributions). Many recordkeepers can begin receiving contributions before the bulk of assets are transferred. Many also provide participants access to their web portal ahead of even receiving contributions so participants can familiarize themselves with the site and use the tools provided there.

Your interviews should focus, in part, on the conversion (or start-up) process. You will want to be sure that there is a team in place to structure, guide and move the process along. There should be a project plan outline, at least, for you to review that includes timelines, deadlines and clearly indicates what decisions, direction and documents will be needed each step along the way.

Conversions are complex and, if not well organized and managed, can be incredibly time-consuming. That should not be the case. The best recordkeepers are well positioned to make the process very efficient. Although we can’t guarantee a good experience, working from our list of recordkeepers from the start can give you a better chance of having one.

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