As a sponsor to a 401(k) Plan, fiduciaries have a number of duties and one of the most important ones is to act in the best interest of plan participants and their beneficiaries. Another important thing for companies that sponsor a 401(k) Plan is to periodically set up a formal process of reviewing their plan and their service providers.
While the Department of Labor does not have a formal requirement for doing Requests for Proposals (“RFP’s”) and benchmarking their 401(k) Provider, it is recommended that plan Committee’s conduct a formal RFP at least every 3-5 years. The size of your 401(k) plan likely increases every few years through employee contributions made by plan participants no matter what the market is doing. A larger plan size plan may warrant a reduction in your plan’s expenses. The RFP process allows the Committee to see if their 401(k) Provider is still providing competitive services and fees. This is based on a number of factors including plan size, and if not competitive, it can show how far off the plan’s Provider is from the current marketplace. Based on these findings, a conversion or 401(k) Provider change doesn’t always have to be made, but the RFP process also allows the Plan Committee and their Advisor to negotiate with their current Provider, if their fees are found to not be competitive.
The Retirement Plan Industry is highly competitive and has undergone a number of changes in the past 10-15 years. There are many 401(k) Providers that have either left the market or been acquired which has changed the landscape of the 401(k) marketplace for Providers and Third-Party Administrators. Expenses, products, and service offerings can be updated and changed frequently. In the absence of an RFP, or at least a fee benchmarking for your 401(k) Plan, the Fiduciary will not know whether their current fees and services are still competitive and in the best interest of their plan participants. Getting a proposal also allows you to see the complete list of available investment options with other providers, and you owe your plan and participants a fiduciary duty to monitor the plan’s investment lineup.
Going through this formal, documented and prudent process periodically is one of the best things Plan Sponsors and 401(k) Committees can do to help meet their Fiduciary obligations. It can also help make sure they are offering a competitive Plan and Retirement Benefit for their employees.
Navigant Advisory Group is a leader in this space and we look forward to showing you what we can do for you and your organization.