Common Mistakes in Retirement Plan RFPs

Common Mistakes in Retirement Plan RFPs

Most retirement plan RFPs are not run with bad intentions.

Plan sponsors and their committees generally approach the process seriously. They collect proposals, review fees, talk to references, and make a decision they believe is sound.

The mistakes that create exposure aren't usually obvious. They're structural — patterns in how the process is designed that limit objectivity, produce incomplete documentation, and make the decision harder to defend if it's ever examined.

These are the ones that appear most often.

Treating the RFP as a Pricing Exercise

Fee evaluation matters. Under ERISA, sponsors are required to assess whether fees are reasonable — and that assessment needs to be documented.

But a process organized primarily around fee comparison misses a significant portion of what fiduciaries are actually responsible for evaluating.

The total cost of a retirement plan relationship includes compensation that doesn't appear in the quoted fee: revenue sharing paid by fund families to recordkeepers, indirect compensation flowing to advisors, and arrangements that affect how providers behave in the relationship over time.

A sponsor who selects the lowest-quoted provider without understanding the full compensation picture may end up paying more in total — and have a harder time explaining the decision if the hidden layers surface later.

Fee evaluation is necessary. It is not sufficient.

Using Inconsistent Data Across Providers

RFPs often fail at the input stage, before evaluation begins.

When different providers receive different data — different participant counts, different asset figures, different fund lineups — their responses reflect different assumptions. The comparison becomes apples to oranges. Fees look lower or higher not because of the provider's actual pricing, but because the underlying data wasn't standardized.

This is one of the most common and most overlooked sources of error in retirement plan evaluations. It doesn't require bad faith to produce a misleading result — just inconsistency in how the process was set up.

Allowing the Incumbent Advisor to Manage the Process

There is a structural conflict in asking an advisor to design and manage an evaluation that includes their own services.

This doesn't mean advisors act in bad faith. Many advisors support RFP processes with genuine professionalism. But the structure of the situation — where the person managing the evaluation has a financial stake in the outcome — is exactly what regulators and plaintiffs' attorneys look for.

Independence in the RFP process is not just about trust. It's about whether the process can be explained as genuinely objective. When an advisor controls the criteria, the provider list, or the scoring framework in an evaluation that includes them, the answer to that question becomes complicated.

Defining Criteria After Reviewing Proposals

Evaluation criteria developed after proposals are reviewed are not criteria. They are rationalizations.

This is a subtle but significant distinction. When sponsors review proposals first and then decide what matters, the criteria naturally align with the preferred provider — which means the documentation reflects a predetermined conclusion dressed up as a process.

A defensible evaluation defines what matters before any responses are opened: which services are essential, how fees will be weighted, what fiduciary support looks like, what participant experience requires. That sequence is what allows the documentation to reflect genuine deliberation.

Documenting the Decision Without Documenting the Process

Many RFP processes produce a clear record of what was decided. Far fewer produce a clear record of how.

"The committee selected Provider X" is a conclusion. What's missing is the reasoning: what criteria were applied, how providers were scored, what tradeoffs were considered, and why the outcome serves participants' interests.

In an audit or litigation context, the decision itself is rarely the focus. The process is. And a process that exists only in memory — without meeting notes, scoring frameworks, or written analysis — is very difficult to defend.

Assuming Internal Teams Can Run a Fully Independent Process

Internal teams can contribute significantly to an RFP process. They understand the plan, the participant population, and the organization's priorities.

What internal teams cannot easily provide is independence from the relationships and politics that surround the current arrangement. Long-standing advisor relationships, internal preferences, and organizational dynamics all shape how an evaluation is structured and interpreted — often without anyone in the room recognizing it.

An independent process isn't a judgment on internal competence. It's a structural protection — one that makes the outcome easier to defend precisely because the people running the evaluation have no financial stake in it.

Independence isn't just about intent. It's about whether the structure of the process allows for a genuinely unbiased outcome.

The Pattern Underneath the Mistakes

These mistakes share a common thread: they each produce an RFP that looks thorough from the outside while leaving meaningful gaps in objectivity, consistency, or documentation.

The risk isn't just a bad provider selection. It's a process that can't be explained — that produces a result but not a record.

That gap is where fiduciary exposure lives.

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