The client engaged Multnomah Group for assistance with a recordkeeping vendor search for their existing 401(k) plan. The client’s primary objectives were to improve overall service levels to their plan, achieve a best-in-class investment array, and control plan costs.
The client is a specialty diagnostics company with 12+ locations in multiple states with 2,700 eligible employees. They have $350 million in plan assets, $2.72 million in total annual fees, and $950,000 in annual bundled retirement services fees.
Working with the client, Multnomah Group developed and distributed a custom Request for Proposal (RFP) to 10 potential vendors, including the incumbent vendor. Each bundled services proposal was carefully evaluated according to 11 categorical metrics, which were weighted according to the client’s search objectives. The categorical evaluation metrics were experience and reputation, client service model, client service levels, technology, education and communications, call center and voice response system, administration, regulatory services, implementation process, investments, and fees.
We prepared a summary profile of each vendor’s response and scored each proposal relative to one another. Our team presented the comprehensive comparative analysis to the client, recommending that four finalists be interviewed. With the client’s approval of our recommendation, Multnomah Group coordinated and documented each finalist’s presentation and facilitated the attainment of necessary supplemental information.
The client ultimately selected the vendor whose service offering most closely aligned to their search objectives, and whose proposed fees created the most value in light of the proposed services. The vendor search process availed the client of the following cost reduction and service enhancements:
A significant reduction in fees. At the initial stages of our engagement, the client did not fully comprehend the Plan’s fee structure. We provided a comprehensive fee analysis and benchmarked current fees to the market. Our conclusion was that the client’s current fees were at least 25% higher than average market fees. The incumbent vendor did not have a set revenue requirement, and kept all investment revenue. The client’s new vendor established a set revenue requirement, with excess revenue funding in a plan expense reimbursement account. The new vendor’s revenue requirement effectively reduced the plan’s bundled services fees by approximately $700,000 (over 73%) in the first year.
Improved investment choices. The client’s prior vendor required the use of proprietary target date funds in the retail share class, making these funds considerably more expensive than other available share classes. The new vendor provided an open architecture investment platform with no proprietary fund requirement. Additionally, total plan costs were even further reduced through the negotiation of lower cost investment share classes.
Service enhancements. The new vendor’s client service team included a dedicated education consultant who will design a well-strategized education program for all employees, regardless of their location. The success of the new vendor’s education efforts will be measured and reported to the client. Additionally, the new vendor’s service offering included participant advisory services at no cost to participants. This was a vast improvement to the prior vendor who provided sporadic and unmeasured employee education and communications. With this new vendor, the client gained access to a robust savings analysis tool and other employee education resources, another element lacking with their previous vendor. Finally, in the previous service environment, the client experienced disorganized and unresponsive service. The new vendor provided a dedicated, highly-qualified and experienced service team to deliver well-defined service levels. Additionally, the new vendor placed fees at risk if service levels are not met.
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