Crafting Effective Requests for Proposals
By Jordan Rice and Troy Jensen
The recordkeeping request for proposal (RFP) process consumes valuable monetary and staff resources, so it is essential that plan sponsors define clear goals at the beginning of the process. Since its inception, Innovest has aided clients with the recordkeeping RFP process in order to help them meet their goals. In the last three years alone, we have conducted nearly 100 RFPs and related price-checking exercises called Requests for Information (RFI). As a result of our experience, we have identified key practices for crafting effective RFPs. Specific topics include establishing clear and definite goals, taking a thoughtful approach to questions, evaluating enhancement offerings, pricing comparison, and customer service offerings.
Establish Clear and Definite Goals
A good starting point is to ask, “Why are we conducting this request for proposal process?” Is it because we are required to by the plan document? Are we concerned about fees? Are participants unhappy with services? Also ask, “What would be the best outcome of this process?” By taking a bottom-up approach, you will be better positioned to conduct a successful RFP.
Design specific RFP questions
To combat that lack of clarity that is typical of RFPs, we highly recommend intentionally framing each question so that it is sufficiently clear whether the recordkeeper provides a certain service. As one example, a plan sponsor exploring recordkeepers’ capabilities regarding student loans might include the question: “Please describe your student loan services.” Unfortunately, the vagueness of the inquiry often elicits wide-ranging responses that may require further effort to reasonably understand each provider’s actual services. Consider instead a series of questions such as: “Do you offer student loan refinancing? (Yes/No); Do you offer student loan consolidation options? (Yes/ No); Do you offer student loan education articles? (Yes/No).” The responses to these specific questions are more likely to be clear and definite responses to match the clear and definite goals established above.
Look for enhancements that will aid participants and plan sponsors
When evaluating recordkeepers, make sure that the enhancements they offer will match your needs. Improvements might include upgraded technology, such as payroll and contribution efficiency or plan sponsor and participant websites. Your needs could include enhanced recordkeeping pricing or less costly fees for ancillary services like loans, qualified domestic relations orders, etc. In addition, your plan could also need an enhanced customer service experience from the recordkeeper.
Evaluate Prices and Fees
Enhanced pricing is almost always one of the clear and definite goals set forth by plan sponsors, and rightfully so. No organization should pay more for a service than is reasonable and ensuring that reasonableness is one of the key obligations for plan fiduciaries. However, depending upon the complexity and overall relationship between the plan sponsor and the incumbent recordkeeper, determining reasonable fees can become as convoluted as other parts of the RFP. We caution plan sponsors not to let pricing be the only consideration and remind them that they are not obligated to select the lowest price. Value often supersedes cost as a more relevant metric. That said, a fair and thorough analysis of fee pricing should be an important part of every RFP. Special consideration should be given to conflicts of interest, ancillary fees and inclusions. For further discussion about pricing and examples, read Innovest’s full White Paper.
Customer Service Offerings
As customer service is a key component of recordkeeping services, it is imperative that customer service is considered during the RFP process. One way to evaluate which customer service approach is best for your plan is to directly interact with each respondent’s service team. This interaction often occurs at finalist presentations. Rather than allowing finalist presentation to be merely a sales presentation, use it as an opportunity to interview the team in person.
An additional way to interact with a respondent’s service team is through Service Level Agreements (SLAs). Innovest recommends that SLAs be crafted with three primary components: a Service, a Measurable Standard, and a Penalty. Each of these three elements complements the other in a direct, measurable way. The best way to devise these components is to develop a chart with the Services and let each recordkeeper develop their own corresponding Measurable Standard and Penalty. The goal is neither to set unobtainable standards nor to generate a stream of revenue from them, but rather to hold the recordkeeper accountable for their promised delivery.
An effective RFP process can help a retirement plan overcome current challenges and make improvements in measurable ways. With careful and thoughtful planning, a request for proposal will yield favorable outcomes for the plan sponsor and participants.