It had been eight years since financial adviser firm Ronald Blue & Co. evaluated its 401(k) plan administrative services provider.
So in 2010, as part of the plan sponsor’s fiduciary duty to ensure it had the finest retirement plan at the best price, Ronald Blue’s chief strategy officer, Vince Birley, assembled a small team of people deeply involved with the retirement plan and started asking questions. Did they have enough investment offerings? Were plan participants getting the information they needed to make informed decisions? Was the human resources department too involved with the plan?
The team set out to find a national provider with a $100 million technical budget, ensuring it would be large enough to handle daily valuations and other administrative support. While they wanted to expand investment offerings, they didn’t want to be obligated to use the provider’s funds; and they wanted human resources to have an administrative-only role. They also wanted a comprehensive education program for participants, as well as assurance the plan would comply with current and upcoming regulations and legislation.
Many firms that submitted requests for proposals dropped out because they couldn’t offer everything the Roswell, Georgia-based company wanted for its 200-participant, $20 million 401(k) plan, Birley says.
“We didn’t want to be sold; we wanted information,” Birley says, adding that the firm ended up changing elements of the plan but stayed with the Des Moines, Iowa-based Principal Financial Group as its bundled 401(k) plan service provider.
“For the size of our plan, I think we’re in an exceptional spot with what we’re offering participants,” Birley says.
Experts say 2011 will be a busy year for retirement plan evaluations. While it is part of a plan sponsor’s federally mandated fiduciary obligation to review provider services, experts say vendor turnover will continue to be active because of recent regulatory and legislative changes as well as a response to an improving economic climate.
Last year, the SPARK Institute Inc., which is part of the Simsbury, Connecticut-based Society of Professional Asset-Managers & Record Keepers, expected a 20 percent increase in plan sponsors to change providers in 2010. Although the institute hasn’t updated its projection, president Bob Wuelfing expects turnover will continue this year.
“There is pent-up demand,” Wuelfing says, adding that plan sponsors held off on making big changes during the financial crisis, but positive economic signs are now encouraging them to make evaluations.
And because the marketplace has changed so dramatically with new investment choices, compliance issues and more, plan sponsors could save about 30 percent on fees by seeking a new provider, says Brian Ward, managing director of Ward Financial Advisory Group, a division of Wells Fargo Advisors Financial Network in Brentwood, Tennessee.
“If you haven’t benchmarked your service provider in the past three years, you can see significant opportunities,” Ward says. “The market has evolved rapidly.”
To get the most out of the process, plan sponsors need to look internally, set goals and define objectives, says Todd Timmerman, managing director for the Principal Financial Group.
Plan sponsors need to pay a great deal of attention to fees, but also need to select the service provider that will best help employees meet retirement goals, Timmerman says.
“The best companies today want to be facilitators for better solutions for participants,” he says.
Assembling the right team to evaluate the plan and then prepare proposal requests is also essential, says Jeffrey Snyder, investment plan search consultant with Segal Advisors Inc. in New York. Because the process can be time-consuming, getting commitment from the board and the executive team is key, but having the people most involved with the plan is critical to setting the appropriate goals and asking the right questions.
Those questions help providers give thorough and consistent responses, which will eventually help plan sponsors make better selections, says Beth McHugh, vice president of market insights for Fidelity Investments in Boston.
Hiring a consultant to help develop the request for proposals can be beneficial, Snyder adds, but the SPARK Institute and other outlets offer request for proposals templates, which can help employers with limited staff or budgets begin the search.
Plan sponsors need to visit finalists on-site to make sure the fit is right.
“You can look at vendors on paper, but really what stands out is when you meet the team,” Snyder says. “You get a sense of the culture of the organization. Those nuances can be very important.”
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