Hiring consultant to lead 401(k) RFP

Does anyone have a sense of the prevalence of hiring consultants to lead 401(k) recordkeeping RFPs? Some folks in my company are pushing pretty hard to do it internally mainly due to cost of the consultant, but I have a lot of reservations about doing it internally in terms of availability and expertise at hand.

If it helps, we're a "large" plan ($200M - $1B in assets) with approx. 5,000 participants, for reference. The plan is safe harbor and fairly vanilla otherwise.

Not sure if this helps or hurts but I used to work for a large benefit consulting company and this was a rather significant book of business. The size plan you describe seemed the most common type of plan they did this kind of work for them. 

It caused a little tension as they had to promise to not even consider our own TPA business as that was an obvious conflict of interest.  So the debate was always was the company better off with this one time RFP consulting jobs or trying to get the recurring TPA work. 

As ESOP guy indicated, the hardest part would be finding a consultant without a conflict of interest, but broad enough knowledge to do the job.  If you do find that person, they are bound to be expensive since there is no recurring revenue to be had.  

Plans of that size are a bit outside my expertise, so I'm not sure how prevalent it is to have a independent consultant lead the RFP, but it seems like a wise investment given the current rash of 401k litigation.  Should be pretty easy to show your 401k committee members the stats on how many cases are in courts at the moment.   

2 minutes ago, TPAJake said:

As ESOP guy indicated, the hardest part would be finding a consultant without a conflict of interest, but broad enough knowledge to do the job.  If you do find that person, they are bound to be expensive since there is no recurring revenue to be had.  

Plans of that size are a bit outside my expertise, so I'm not sure how prevalent it is to have a independent consultant lead the RFP, but it seems like a wise investment given the current rash of 401k litigation.  Should be pretty easy to show your 401k committee members the stats on how many cases are in courts at the moment.   

Not too worried about the conflict of interest; we can manage around that.

With the plans that you typically work on, do most plan sponsors hire a consultant to lead the RFP?

1 hour ago, formeractuary said:

With the plans that you typically work on, do most plan sponsors hire a consultant to lead the RFP?

All the plans we work on do hire a consultant or have an existing adviser and our average plan size is much smaller. There are a handful of specialty (i.e. qualified plans) regional and national advisory firms that do not have proprietary platforms or ties to record keepers. For an experienced adviser, the project billable is attractive project work because they will have templates built and all the right contacts in place already. Depending on their client base they may have the advantage of historical bids they have received for other clients. This can benefit you in terms of negotiation power for an adviser to say "well you bid this one at $x per head... why the difference...."

But of course the adviser will hope to be hired long term.

A plan that size should have a consultant for a variety of reasons, let along guiding the plan fiduciaries through the fiduciary process of selecting services providers (including retaining the existing service providers should their RFP process lead them to that conclusion) - who may themselves be fiduciaries.  The question really revolves around whether or not the plan fiduciaries (internal to the plan sponsor) are "expert" enough to meet the standard of a "prudent expert" in the RFP process.  I doubt it - they all have "day jobs" too, and the "corporate" objectives need to be balanced against the plan's interests - and they may be divergent.

Lots of consultants out there who would do it:  Mercer, Towers, Buck (national players) and lots and lots of regional players....

The firm I work for is a regional player but this is exactly the kind of work we do. We don't even offer recordkeeping services and we bill the project on a flat fee basis. So we do exist!

Ah, but how do you KNOW you exist? Welcome to...The Twilight Zone.

8 minutes ago, Belgarath said:

Ah, but how do you KNOW you exist? Welcome to...The Twilight Zone.

Anyone who's 'handle' is "Doghouse' must exist - The Cosmos is not that clever as to create it by accident.

In case it helps to put numbers behind the question, a recent Callan survey showed that ~81% of plan sponsors engage an investment consultant. Now to be fair, we can't assume that all of those consultants engage in RFP work on a regular basis. Similar to what a few folks reported above, our firm will either have RFP services baked into the annual retainer, or hire out on a flat project fee basis.

You'll also want to consider the sophistication of your committee: are they familiar with concepts like revenue sharing, fee levelization, limited vs. open architecture, etc.? If so, it may be within their skillset to perform the RFP in-house. If not, we would seriously advise hiring a third party to assist with the project.

Remember that your job as a fiduciary is to ensure that your fees are reasonable for the level of services provided. While reading through RFPs will help you understand what services are available, and at what cost, it's hard to quantify or measure the quality of those services without personal experience. For example, for plans similar to your size, most bids will propose offer custom marketing solutions; however, this could mean anything from slapping a logo on standard templates, to full customization of the website & print materials to your company's look and feel.

6 hours ago, formeractuary said:

Not too worried about the conflict of interest; we can manage around that.

With the plans that you typically work on, do most plan sponsors hire a consultant to lead the RFP?

Most are represented by an existing Financial Advisor/broker & that firm would lead the process.  In cases where the FA is on the chopping block too, I've seen Mercer & Buck take this role, as mentioned above

37 minutes ago, TPAJake said:

Most are represented by an existing Financial Advisor/broker & that firm would lead the process.  In cases where the FA is on the chopping block too, I've seen Mercer & Buck take this role, as mentioned above

Often the existing financial advisor leads the RFP process, and therefore he/she/they are never put on the chopping block.  Only the recordkeeping and TPA services get the privilege.  

Hello formeractuary I hope you are well today.

You should hire an investment adviser before you review your recordkeeper, trustee and custody relationships. That investment adviser can lead the review process for you. It is very unusual for a company of your size not to be working with an investment adviser.

A competent investment adviser will save you at least the amount in fees they charge you each year. An investment adviser serving as a fiduciary without limitation will also ensure that your plan is in fiduciary compliance and educate your investment committee on their fiduciary responsibilities. 

I have worked with many Fortune 500 companies (Apple, AT&T, IBM and many others) on their retirement plans and would be happy to have a phone conversation with you (without any obligation for you to hire my firm). I can be reached at 414.828.4015.

Robert C. Lawton, President, Lawton Retirement Plan Consultants, LLC

Hello, yes, I think you should definitely consider using an outside consultant for your recordkeeper search.  Gathering information from several potential recordkeepers and digging through their fees and operating capacities can be complex and time consuming and it is easy to overlook or misunderstand the service if you aren't well versed in the industry.  We regularly conduct vendor searches for firms your size, so feel free to contact us if you would like to discuss further or get a quote for our services.  www.consultRMS.com   Thanks and good luck!