How To Select Vendors For Your Plan

How To Select Vendors For Your Plan

November 18, 2016

Whether you’re starting from scratch or just trying to comply with ERISA’s mandate to determine if you’re paying reasonable compensation, conducting a vendor search can be a daunting proposition. The time involved and the details which must be overseen can be intimidating even for professionals. Here are some tried-and-true best practices for conducting a vendor search that will help make the process smooth and productive for you and your clients.

Define Search Objectives

First and foremost, you need to have a goal in mind in order to have a productive search. You need to know what you’re looking for. Your objectives will be determined by your plan needs, participation rates, budget constraints, past experiences with vendors, participant input and marketplace trends. Having these things in mind will guide you throughout the selection process as you assess whether vendors are able to meet your needs or not.

Prescreen Vendors

You don’t want to request proposals from just any vendor. A lot of vendors specialize, and their area of expertise may not be a good fit for your clients’ plan. Your search will be more efficient when you do a pre-qualification and only accept proposals from vendors that provide the services that you are looking for.

Establish A Timeline

Having a good schedule planned out will ensure that the process doesn’t drag on and things keep moving. You should allow about six months for the entire selection process to happen before the desired conversion date. Things such as benefits fairs, open enrollment periods and plan entry dates should be taken into consideration when developing your timeline.

Write A Comprehensive Request For Proposal

If you want vendors to tell you how they can provide the custom services that your client’s specific plan needs, you need to be able to communicate those needs to them. You need to draft a request for proposal (RFP) that is unique to the plan’s distinct goals and requirements. Without a clear RFP, you will only receive generic proposals that make it hard to distinguish which vendor can best service the plan.

Decide Upon Specific Evaluation Criteria

Having well-developed, comprehensive evaluation criteria will make it much easier to sort through your proposals and compare them one with another. Some criterion to consider include:

  • Administrative capabilities
  • Fees
  • Investment options
  • Vendor experience
  • Investment platform
  • Service team and models
  • Service commitments and reputation
  • Ability to perform all services required by the plan

Each plan may require different criteria as well. Not only is it important to have set criteria to use, but it is essential that it aligns with the particular objectives of the plan sponsor.

Openly Seek Explanations & Further Information

Once you receive a proposal you may have further questions or require clarification. Don’t hesitate to contact the vendor. Not only will you get answers to your questions, but you will have the opportunity to see what it is like to work with that vendor, how responsive they are to your needs and how well they communicate.

List IPS-Compatible Investment Options

The plan’s Investment Policy Statement should already provide parameters for choosing investment options. It should provide all of the guidance you need to select a new lineup of funds and create a well-rounded menu for plan participants.

Inspect Sample Materials

You can get a better idea of what a vendor’s service package will be like by reviewing sample plan documents, service agreements, and participant enrollment materials. Surveying a wide variety of materials produced by the vendor will reveal the quality and value that they provide.

Verify References

As they say, you can’t always judge a book by its cover. Even if a vendor looks great on paper, it is always wise to speak with someone who has actually worked with them. Check at least three references and ask specific questions about their experiences before selecting a vendor.

Negotiate A Guaranteed Level Of Service

Vendors should have some motivation for providing the level of service that they promise. They should be willing to relinquish some fees if certain service levels are not met. Once agreed upon, these guarantees should be included in the vendor service agreement.

Communicate Changes Conscientiously

It is human nature to be averse to change and plan participants are no different. It is important to clearly communicate why the changes are being made and how the participants will benefit from them. Plan sponsors must carefully plan how and when things will be communicated based on their particular company’s culture.

Develop A Conversion Schedule

Last, but not least, you need to execute a successful conversion if the search process results in a new vendor. Establishing a timeline that includes things such as restating the plan document, selecting a fund lineup, executing service agreements, educating participants and scheduling enrollment meetings will help ensure that everything goes smoothly and in a timely fashion.

How I Can Help

If you and your client need help with the vendor search process, I can help. I am an experienced pension plan specialist who partners with financial advisors and their plan sponsor clients. Email me at to discuss the plan vendor selection process and how I can make it easier for both you and your clients.

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.