Certified Plan Sponsor Professional (CPSP) Practice Exam

When is it advisable to issue a formal request for proposal (RFP) according to ERISA standards?

1. Every three years

2. It is not required by ERISA but is good practice

3. Only when changing investment managers

4. Only if explicitly stated by the plan policy

The correct answer is: It is not required by ERISA but is good practice

Issuing a formal request for proposal (RFP) is not mandated by ERISA standards; however, it is considered good practice in the context of plan sponsor responsibilities. The key reason for this is to ensure that the plan's fiduciaries are acting prudently and in the best interest of the plan participants. Conducting an RFP allows plan sponsors to compare services, fees, and performance of potential investment managers or service providers, which can lead to improved outcomes for the plan and its beneficiaries. While some plans may opt to issue RFPs on a periodic basis, such as every three years, or when making significant changes like switching investment managers, these actions are not prescribed by ERISA. Instead, the regulation emphasizes the importance of prudence and loyalty in managing plan assets, making the practice of issuing an RFP an excellent way to demonstrate compliance with fiduciary standards. Furthermore, relying solely on the plan policy without consideration for market variables may not reflect the level of diligence expected from fiduciaries. Thus, consistently considering RFPs is advantageous for effective plan oversight and governance.