Including Regular RFPs as Part of a Fiduciary Liability Reduction Strategy

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans.

A recent call with a senior financial advisor from Massachusetts is representative of a common inquiry involving plan sponsors and service providers. The advisor asked:

“Does the DOL require plan sponsors to solicit RFPs on a regular basis from plan service providers?” 

Highlights of Discussion

While the DOL may not formally require plan sponsors to regularly request RFPs from plan service providers, the agency does assume that “… plans normally conduct requests for proposal (RFPs) from service providers at least once every three to five years … ” in anticipation of changes to fee and service disclosures.1 In fact, the DOL has stated: “… in hiring any plan service provider, a fiduciary may want to survey a number of potential providers, asking for the same information and providing the same requirements. By doing so, a fiduciary can document the process and make a meaningful comparison and selection.”2

Business owners who sponsor ERISA-governed plans for their employees, such as 401(k) plans, have a fiduciary duty to administer and manage their plans prudently and in the best interest of the plans’ participants and beneficiaries. By extension, plan sponsors must follow a prudent process to both select and monitor any service providers engaged to support their plans. Therefore, requesting RPFs at regularly scheduled intervals can be part of an effective fiduciary liability reduction strategy and established plan governance program.

Court cases have provided more support for including a regular RFP process in plan governance. For example, the appellate court in George v Kraft Foods Global Inc., No. 10-1469, WL 1345463 (7th Cir. Apr. 11 2011), held that plan fiduciaries who did not conduct RFPs every three years were at risk for fiduciary litigation. The case was eventually settled in 2012 for $9.5 million.

An important supplement to the RFP process is annual benchmarking. The two go hand-in-hand to help protect plan sponsors. A benchmark report will show how a plan’s fees compare to the average in the marketplace, while the RFP process engages the plan sponsor and provides a means to evaluate the quality of those services.

Conclusion

The DOL assumes that plan sponsors solicit RFPs for service providers every three to five years as part of their fiduciary duty to monitor plan service providers. Annual benchmark reports supplement the RFPs. Both are integral parts of a plan sponsor’s fiduciary liability reduction strategy.

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Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2018, Retirement Learning Center, LLC. Used with permission.

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