PLANSPONSOR - March - April 2023 - 38

FIDUCIARY FORUM
When Providers
Consolidate
How to greet your 'uninvited guests'
S
ervice provider consolidations continue to trend this year. In
fact, we are no stranger to them and frequently find ourselves
advising plan committees on next steps in satisfying their
administrative and fiduciary responsibilities in light of one. Many
committees go with the flow and accept the
change of service providers. Why not? Even
if you didn't invite them to the " party, " it's
essentially the same people continuing to
provide the same services, just with a new
name. Right?
Well, not necessarily. It may be easy for
all parties involved to keep the status quo.
After all, it's very possible that the services,
fees and compensation will remain the
same and it's just an administrative change.
Yet, this approach can lead to a myriad
... the change in
service providers
will likely be
immediate
and may have
administrative
issues that, if left unaddressed, can create
unintended risk and liability. Plan fiduciaries
should make sure they ask the right
questions and take the appropriate steps
upon notice of such a consolidation. This is
because the change in service providers will
likely be immediate and may have administrative ramifications as
well as fiduciary considerations.
For example, what does this mean from a service agreement
ramifications as
well as fiduciary
considerations.
perspective? Does the original agreement allow for assumption by
a third party, or assignment to it by the service provider, without
the plan committee's consent? This issue is often overlooked
and should be addressed as soon as possible. We often find that
plans with long-standing service provider relationships may not
have updated their service agreement since prior to 2012. Much
has changed since that year-including the addition of 408(b)(2)
service provider disclosures we will discuss shortly-and plan
committees should take a fresh look at those agreements, to attend
to changes in disclosure obligations and retirement plan administration.
Plan committees should also contact their fiduciary
liability insurance carriers and fidelity bond carriers to ascertain
whether there are any notice requirements that must be satisfied.
What fiduciary duties will plan fiduciaries have with respect to
a consolidation-especially when the service provider is acquired?
Fiduciaries will want to take proactive steps and request assistance
in considering these duties. Some sponsors obtain a benchmark
38 PLANSPONSOR.COM March - April 2023 Art by Joseph Ciardiello
of their plan to evaluate the fees and services of the " new " service
provider. However, some may realize that a benchmark is insufficient
and proceed with a request for proposals.
While the idea of an RFP may strike fear into the heart of some
plan fiduciaries, doing one may be appropriate
to help establish that the fiduciaries
are meeting their obligations. There is good
news, however. An RFP comes in many
flavors and can be designed to address the
specific concerns. The fiduciary can work
with the plan's advisers to design one that's
suitable to the task at hand.
Plan fiduciaries will also need to
ensure that any applicable notifications
are provided in a timely way to both themselves
and the plan's participants. Included
must be the required Employee Retirement
Income Security Act Section 408(b)(2)
disclosures. This means the " new " service
provider must inform the plan fiduciaries
about its services, compensation and fiduciary
status so the plan fiduciaries can
determine the " reasonableness " of the new arrangement.
We commonly find that service providers will initially satisfy
this disclosure requirement through an assignment of the original
service agreement. In reviewing that document, plan fiduciaries
should be careful to verify that the terms are still reasonable and
have been updated to reflect the current arrangement. Significant
changes to the original service agreement may be necessary, ultimately
resulting in the creation of a new document.
It may be daunting to have uninvited guests crash your retirement
plan, but you may find these providers bring with them new
and innovative services in the best interest of the participants. To
make that determination, though, the sponsor should understand
its role in the process and take the necessary affirmative steps to
meet both its administrative and fiduciary responsibilities.
Summer Conley is a partner in the Los Angeles office of
Faegre Drinker Biddle & Reath LLP. Michael Rosenbaum is
a partner in the firm's Chicago office. Heather Bader, also
a partner in Los Angeles, contributed to this column.
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