Sample Request for Proposal (RFP) for a 401k Provider
Here is an outline you can use when putting together a RFP for a 401k provider. Included in this outline are important questions you should be asking. Where appropriate, we also tell you why you should be asking these questions. Please note that these explanations (bold italicized text) should NOT be included in your final RFP -- they are there for your information.
- Name of Company.
- Address of Company.
- Contact Information for questions on the RFP.
- Deadline for completing and returning the RFP.
- Note how many copies of the completed RFP do you want.
- Who and where should completed RFPs be sent.
- Your objective including any important service standards you expect.
- Background on your company and the plan.
- 401k Plan overview. This should include, but not be limited to, information on how many employees are eligible for the plan; how many employees are participating; what are the eligibility requirements; does the company match and if so, how much; what is the vesting schedule for company contributions; how often can participants make investment changes (e.g., semi-annual, quarterly, daily); are loans allowed, and if so, how many plan loans are outstanding currently; are after-tax contributions allowed; what are the current investment options and the market value of each option; what is the current monthly contribution rate (in dollars); how often are statements mailed to participants; who is the current plan provider.
- Note any plan improvements you want to make, e.g. move from quarterly to daily valuation; provide investment advice; go to automatic enrollment.
- Ask for an overview of their company including how long they have been in business; how many 401k plans do they administer and what percentage is this of all their clients, how many daily plans do they currently administer and what percentage is this of all clients; how many new 401k plans did they add this year, last year; how many clients left them this year and why, last year.
- Ask about any trust/custody or recordkeeping system conversions planned in the next 12 months (only system-wide conversions, not new client conversions). Although not bad, these type of software changes can have a severe impact on the service you may experience during and after such a conversion.
- Are there any current or pending litigation or administrative actions against your firm? If yes, please describe them.
- Do you receive any 12b-1 or other compensation from any mutual funds that are or will be contained in our plan and, if so, is it used to reduce our costs? This is a big area that you need to cover. Many fund providers make money off of you not only from the fees they charge you, but also from commissions and rebates they get from the mutual funds. These rebates and commissions increase the overall expense ratio of your investment fund options and thus increase plan costs. Be sure the vendor fully discloses all of these type of arrangements so you know the full cost to you.
- Will your firm, its employees, and/or any affiliated or related entity be paid fees and/or commissions (including those from revenue-sharing and commission recapture) for its services to the our plan from sources other than the plan?
- Does your firm, its employees, and/or any affiliated or related entity derive any economic benefit from any investment entities, intermediaries or service providers that are or will be involved in our plan?
- Does the firm have Errors and Omissions Insurance? Directors & Officers Liability Insurance? Fiduciary Liability Insurance? Who are the carriers and what are the limits?
- Is your administrative staff "certified" by any organization and if so, what credenials do they have. Be specific as it relates to our plan. It is important that the administrative staff servicing your plan be well qualified. One way to ensure this is to have only credentialed administrators working on your plan.
- What quality control systems do you have in place? Describe fully.
- What is the maximum number of investment funds options our plan can have? Are there any inherent limitations about this number or the kind of options we can have? Some recordkeeping systems have a limit on the number of options a plan can have over the life to the plan -- e.g., 20. Be sure you completely understand any such limits. Can you maintain our company stock as an option? How many funds did you assume in your fee quote? What is the cost per fund in excess of your quote?
- What information will we receive about investment options? Provide copies of all reports that are available.
- Is it possible to invest in mutual funds not managed by your company?
- Discuss your company's ability to provide quality investment vehicles and a well-diversified portfolio. List investment options available.
- Will your representatives be available to meet regularly with our investment committee to review the plan and investment options? If so, how often can these meetings be provided and what information will you be providing? If you are not working with a pension consultant on your plan investment options, you need the vendor to be providing you with regular reports on performance and suitability.
> Participant statements
- Describe how you will assist us to enroll new participants. For example, will you mail enrollment materials to participants' home addresses?
- What are your quality and/or service standard for the following:
> Lump Sum Distributions
> Hardship withdrawals
> Loan Distributions
> Payroll processing
> Investment changes
How do you monitor this these service standards and what happens if the standard is not met?
- Can you support automatic enrollment of eligable employees?
- Can you support automatic annual increases in a participants contribution rates?
- Describe your ability to customize participant statements. What makes your participant statements different or unique in the marketplace? Please provide samples.
- Can you calculate and report a personal rate of return for each participant and report this on each participant statement? Does the rate of return calculation incorporate the participant's cash flows?
- What is your quality standard for returning calls from our benefits staff? How do you monitor this standard?
- Please include a sample plan management report that includes such data as total plan assets by fund, cash flow summaries, participant usage statistics, etc. How often are such reports produced? Are they available on request? Are they available on your plan sponsor website?
- Do you require the use of a prototype or volume submitter document? Who does plan amendments if we use an individually designed document? Is there a difference between required regulatory changes and elective changes? Do you restate the plan due to the change - or do we work with our own consul on this? How are we advised of regulatory changes? It is very important that you understand just what plan maintenance work they will provide and what you must make other provisions for. You don't want to assume they are keeping your plan current and then find out in a DOL audit that they have not been.
- What assistance do you offer in drafting, designing, printing and distributing Summary Plan Descriptions?
- Is there an additional fee for plan document maintenance and/or elective changes? If so, be sure to include this cost in the fee section.
- Describe all the testing and other administrative work you will provide. Are there standard testing or administrative work which you do not normally perform? Be sure you completely understand what they are going to do and what they are not going to do for you.
- As part of your recordkeeping services, do you prepare and file all required government filings needed to maintain the plan's qualified status (e.g., 5500, W-2, 1099)?
- Will you provide us a SAS 70 report? A SAS 70 report is an independent review of their policies and procedures and can give you a good feel for how well they adhere to them.
- Is there a minimum length of time we must stay with your company for plan administration?
- What is the name of the custodian for your product? Where are they located?
- Will it also act as trustee over all plan assets?
- Will your representatives be available on-site for initial enrollment meetings and ongoing meetings at all employer locations? If so, how often can these meetings be provided?
- Describe your approach to educating our employees. Address the use of standardized materials, alternative media and overall methods. Do you have an "advice" service? If you offer an advice service, will you act as a co-fiduciary? You want to ensure that your participants are getting a good basic level of education. It is part of your responsibility. Newsletters are okay, but you should really be providing some type of classroom experience at least annually. Online education is also good, but few participants will use it.
- Please provide samples of all of your education material.
- Provide client name, contact name, address, and phone information on at least three current client references of plan asset and participant size similar to our plan. At least one reference should have converted to your product within the last 12 months. Call the references and talk to them!
- Provide reference information on three former clients, at least one of whom has left within the last 12 months. Include reasons for why they ceased to be a client. Call these former clients and talk to them!
- Does the service provider conducts periodic risk assessments to identify cybersecurity threats, vulnerabilities, and potential business consequences?
- What are the service provider's processes and systems for dealing with cybersecurity threats and protection of personal identifiable information?
- Does the service provider have an annual independent assessment made of its cybersecurity processes?
- Does the service provider have a Chief Information Security Officer or equivalent position?
- Does the company have a privacy and security policy, and does the policy apply to personal identifiable information of retirement plan clients?
- Does the service provider have policies, procedures, data encryption, and technical measures to prevent unauthorized access or alteration, fraud, theft, misuse, or physical damage to hardware, software, communications networks, and data.
- What are the service provider's system back-up, security and disaster recovery procedures. Are files archived and stored at an off-site location? If so, what is the location? Have procedures been tested? When did you last perform a full-scale disaster recovery test?
- Is the company's policy clear with respect to storing personal identifiable information on laptops and portable storage devices? What is that policy?
- Are technology systems regularly updated?
- Does the service provider have policies on storing personal identifiable information including where it is stored, how long it is stored, and how it is eliminated?
- Are all personnel who come in contact with personal identifiable information trained on adequate protection of the information?
- Does the company carry cybersecurity insurance? If yes, provide an overview of the coverage.
- Has the company experienced any security breaches? If yes, explain.
> Conversion fee
- What are the fees for setup? Usually, there is a base fee and a per participant fee.
- Ask them to fully itemize all fees including the following:
> Charges for plan administration
> Moving assets from one fund to another
> Cost to amend the plan
> Cost to terminate the plan
> Loan, hardship, rollover, distribution fees
> Other transaction fees
> Other fees
Matthew Gnabasik in his book "Smart Choices: Selecting and Administering A Safe 401(k) Plan" provides some good advice on common mistakes in the vendor selection process. We have paraphrased some of them for you here.
- Not Asking Enough Tough Questions: You decide to ask for help in the search process and turn to a broker or consultant. If you do so, be sure you ask them plenty of tough questions about their qualifications to help you and if they have any conflicts of interest. Do they have their own product that they want to push on you?
- Not Shopping Around: The 401k marketplace is very competitive and product offerings vary greatly. It pays to shop around. Remember, selecting your vendor is a serious fiduciary obligation.
- Confusing Sales People with Consultants: Most 401k vendors distribute their product through an in-house sales force, and these salespeople are often quite good at their job, which is selling products. Be careful about relying on them too much for objective information.
- Reducing the Buying Decision to Only Cost: Cost should never be your primary decision element, even though it is an important part of the buying decision. Basing your selection simply on who has the lowest cost is short-sighted and may have long-lasting negative repercussions.