Conducting a Recordkeeping Vendor Search: Best Practices

The benefits of conducting a vendor search substantially outweigh the potential short-term inconveniences. This two-part series starts with an overview of the many benefits of a vendor search, and the second blog in this series will focus on twelve best practices that, if followed, will substantially alleviate the perceived burdens of conducting a vendor search and help guide the plan sponsor to a perfect-fit vendor. Applying some battle-tested best practices along the way will not only help mitigate any inconveniences but also ultimately result in selecting the most suitable vendor for the plan.

The 12 best practices listed below have helped plan sponsors minimize the inconveniences and potential disruption that are sometimes associated with conducting a vendor search.

  1. Determine Search Objectives: Align the search objectives to plan needs, budget constraints, past vendor experiences, current plan participation rates, participant feedback, and marketplace trends. Insist that proposing vendors demonstrate an understanding of and focus on these objectives throughout the process.
  2. Prequalify Vendors: Prequalifying vendors will create efficiencies during the vendor search process because only vendors known to successfully deliver services to similarly situated plans will be invited to propose.
  3. Develop a Search Schedule: A well-thought-out project timeline will keep the vendor search project on schedule to achieve the desired new vendor conversion date. Allow six months to complete the vendor search and coordinate it with other activities such as open enrollment periods, benefits fairs, ongoing plan entry dates, or plan year end.
  4. Draft a Thorough RFP: Ensure that the request for proposal questionnaire is specific to the plan's needs and goals. Use the RFP to provide vendors with the information necessary for them to propose services that are custom-tailored to suit the needs of your unique plan.
  5. Develop Comprehensive Evaluation Criteria: When evaluating a population of potential retirement plan service vendors, using a comprehensive set of evaluation criteria is very important. Of course, aligning the evaluation criteria to the specific objectives of the plan sponsor is also essential. Evaluation criteria include vendor experience, service team and model, service commitments, administrative capabilities, investment platform, and capability to perform all of the services required by the plan.
  6. Freely Request Desired Follow-up Information: Sometimes a review of a vendor's proposal can spring other questions to mind. Freely request any desirable supplemental information. For example, vendor candidates should be willing to demonstrate plan sponsor and participant websites and answer all of the plan sponsor's questions along the way.
  7. Develop an Investment Menu Consistent with IPS: Consult the plan's investment policy statement for guidance when selecting the new fund lineup. The lineup may include a qualified default investment alternative to help further mitigate the plan sponsor's fiduciary liability.
  8. Request and Review Sample Materials: Sample service agreements, plan documents, and participant enrollment materials can help bring the vendor's proposed service package to life. Requesting a comprehensive array of materials is also a good way to assess the quality you can expect from the vendor.
  9. Check References: Before selecting a vendor, check at least three references. Ask the reference specific questions about their experiences with the vendor and take detailed notes.
  10. Negotiate Service Guarantees: Vendors should be willing to put fees at risk if they do not achieve certain service levels. These service guarantees can be incorporated into the service agreement with the vendor. Require that the successful vendor be willing to do this.
  11. Inform Participants Carefully: Participants do not always appreciate vendor changes. However, when they are able to understand and see the benefits of the change to them, they are likely to feel reassured that the change was not just some top-down mandate. Strategize the rollout of information to participants throughout the process accordingly. In some cases, it may be important to include rank-and-file employees in the vendor search process to help ensure acceptance by the overall participant population.
  12. Establish a Conversion Timeline: If a new vendor is selected as a result of the search process, establish a conversion project timeline. Include items such as selecting the fund lineup, executing service agreements, restating the plan document, educating participants, scheduling enrollment meetings, and otherwise preparing for the vendor change.

ERISA clearly imposes a fiduciary duty on plan sponsors to prudently select and monitor the plan’s vendor and ensure that the fees charged to the plan in connection with the vendor’s services are reasonable. This fiduciary duty is continuous. While the vendor search process may initially seem burdensome, following a few best practices can mitigate the inconveniences, and the benefits quickly overwhelm the burdens.

For our complete guide on conducting a vendor search process, download our complete guide here.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are 
not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

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