When Procurement Is Involved in the RFP Process

“More frequently we’re starting to see requests for proposals (RFPs) [for retirement plan service providers] go through procurement departments,” says Kathleen Kelly, managing partner at Compass Financial Partners in Greensboro, North Carolina.

Stephen Popper, managing director at SageView Advisory Group in Boston, explains that procurement departments for large organizations are in charge of any outside engagement of services or supplies, from furniture to fiduciary investment services. “Their job is to get something for a business unit.”

According to Popper, some procurement departments are involved in every step of the RFP process; many write the RFP, some get involved in provider reviews or presentations, and they are always involved in cost negotiation. “This is why they get involved—for cost control,” he says. “The company wants to make sure prices are negotiated and stay within budget.”

Kelly adds that fiduciaries or plan committee members often have other pressing responsibilities than the retirement plan. “From an efficiency standpoint, I can understand using procurement,” she says. “Internally leveraging their services is a positive.”

Popper says most procurement departments do not have expertise in investing or Employee Retirement Income Security Act (ERISA) matters—an innate problem that exists. If a company requires the RFP go through this department, education is needed.

It’s not a matter of procurement working against fiduciary responsibilities, Kelly adds. It’s more of an unknown, she says. “You don’t know what you don’t know,” she says. She recommends that plan fiduciaries get involved at the very beginning.

If procurement is writing the RFP, HR or the benefits manager can act as a subject matter expert, Popper says. For procurement staff that want to do a better job of helping plan fiduciaries get what they want and seek retirement plan education, companies should give them the information to make them better consumers, he adds.

Popper had one client that sent an RFP for advisory services to retirement plan recordkeepers. Kelly said RFPs written by procurement departments that she’s seen had reasonable questions, but some also had other questions you wouldn’t typically see for retirement plan services.

There are resources a plan sponsor can access. For example, Kelly notes that the Retirement Adviser Council has a guide for conducting adviser RFPs that can help build a thorough process. She also says there has been a lot of growth in service providers hiring consultants just to select plan advisers or consultants for plan clients.

According to Kelly, the RFP process can be even more difficult when looking for a recordkeeper. Advisers can help when plan fiduciaries do not have time or expertise. “Using an adviser will ensure a thorough process by an expert,” she says. “It’s suitable best practice.”

Kelly adds that the checks and balances with hiring a retirement plan service provider is not the same as with purchasing furniture or some other supply. “Fiduciaries need to set up goals and key attributes of a vendor that are most important to them, and identify some type of scoring methodology to prioritize that criteria,” she says. “Plan sponsors should keep in mind that their fiduciary responsibilities include identification and selection of service providers.”

Aside from failing to meet fiduciary responsibilities, buying something fiduciaries do not need or want is a problem, Popper adds. “If procurement ends up hiring a broker when what is needed is a fiduciary adviser, they have not solved the problem for their constituent, and it has wasted time and will have to do another RFP,” he says.