Friday, August 24, 2012

The RFP Process -- Full Disclosure or Not?

Some people send out lots of requests for proposals whether it's in their business life or in their personal life. Others respond to a lot of them. Recently, I was in that first category for a change, but far more often, I am one of the people responding to a request for proposal (RFP).

My most recent endeavor in requesting a proposal was in my personal life. My wife and I needed to engage a painting contractor for our home. We sought bids from several firms.

In each case, we told the salesperson or proprietor what type of paint we planned to use. In this case, it was a particularly high end paint that is designed to last, even in the hot and humid Atlanta weather where torrential summer thunderstorms are the norm. A keen observer should have learned something from that. We also told each potential bidder which contractors we were talking to. In my opinion, the smartest contractors took the opportunity to compare and contrast their own services with those of their competitors. Obviously, they slanted the analysis in their own favor, but we learned things about each potential vendor in the process that we would not have learned had we not been honest and open on our side.

I also get my fair share of RFPs that I have to respond to. Usually, I will ask for a lot of information. I want to know who I am bidding against.


Here are a few reasons:

  • The group of potential consultants from whom the prospect has chosen to request a proposal tells me something about the company's mindset. It may even tell me that I don't want to bid because it's clear that I have no shot at winning, but have simply received the RFP as a courtesy.
  • Ultimately, if I win the bid, I want my client to be happy with the services they receive. For this to happen, it's helpful if I can compare what I have to offer to what my competitors likely have to offer. Of course, I am going to try to use this to my advantage, but my competitors can and should as well. But, from the client's standpoint, this should help them to make a better and more informed choice of consultants.
  • I may even make a statement to the prospect to the effect that if they are looking for what I am going to refer to here as style #1, they would be best off with Consultant X, but if style #2 is a better fit for them, then we would have a very good relationship with each other.
The client wins as well. The eventual successful bidder knows things about their client up front. They don't have to burn time and money on the learning process. Because of that and because consultants will be able to make more educated selling decisions, something else important happens that is of benefit to the client.

What's that?

If the consultants who are bidding think they understand the process and really go after the opportunities that they think are the right ones, they will price them more aggressively. That's right; consultants want the work where they know they are the right fit and they will bid more aggressively.

So, with full disclosure, the consultants (or other vendors) win and the clients win. Everybody wins. Isn't that the best result?

Friday, August 17, 2012

IRS Issues First MAP-21 Guidance

Kudos to the IRS. Yes, you heard it here first, kudos to the IRS. On July 6 of this year, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act, hereinafter known as MAP-21. As anyone reading this blog will know, MAP-21 contained pension funding stabilization provisions, and interpretation of and guidance related to those provisions was of extreme importance.

Yesterday (that's a 41-day time span), the IRS issued Notice 2012-55 providing us with interest rate guidance for the preceding 12 months. For those of you who are pension actuaries or who are plan sponsors of defined benefit plans, this information is critical and the speed with which it got to us was essentially unprecedented.

For those who understand the terminology, First Segment Rates under MAP-21 are currently at 5.54%, Second Segment Rates at 6.85%, and Third Segment Rates are at 7.52%. These are increases of approximately 3.5%, 1.8%, and 1.3%, respectively from reality.

For those who are unfamiliar, these provisions of MAP-21 are allowing pension plan sponsors (and their actuaries) to use ridiculously smoothed interest rates to value their liabilities. It took only six years, but among the most key provisions of the Pension Protection Act has been gutted, all in the name of decreasing tax expenditures.

Most of the popular (and unpopular) media speaks about the IRS as the Evil Empire. They can be, at times, but in this case, don't blame it on them. They did their job, and they did it quickly. It's Congress and the President who passed and signed the law.

Tuesday, August 7, 2012

The Accidental Fiduciary

Lots of people in business aspire to be on a corporate board of directors. It's a position of power. It's a position of prestige. You get to rub elbows with movers and shakers. Depending upon whose board it is, you may get paid a lot of money. And, you may be an accidental fiduciary in a retirement plan.

What was that? What did you say, dear blogger author person? Did you just tell me that being on a corporate board could saddle me with fiduciary responsibilities in a corporate retirement plan? Doesn't that mean that I am mutually and severally responsible for ensuring that what goes on in the plan is done in the best interests of plan participants?

How in the world did this happen?

You may recall that earlier this month I posted about the dangers of boilerplate work. Back then, I did it in the context of providers bidding low amounts to provide services and then providing you with exactly the same work product they have given to everyone else. It's not just consultants, some attorneys do this as well.

Just last week, I was speaking with an attorney friend of mine (yes, even an actuary can have an attorney friend or two). He warned me that this was going on and while I was not surprised to hear it, I was a little surprised with regard to the specific context.

And, then I saw it. With my own two eyes, aided by some pretty spectacular reading glasses, I saw it.

The Plan Committee shall be responsible for the operation of the Plan. The Board of Directors, or if so specified by the Board of Directors the Compensation Committee of said Board, shall be responsible for the selection of said Committee.

Bam! That's how a Board member can become a plan fiduciary and be legally and financially responsible for the actions of that plan committee.

Maybe being a corporate board member has some downside, too.