As a plan fiduciary, you have a responsibility to ensure that the services provided to the plan are necessary and that the cost of those services is reasonable. To fulfill that important duty, make sure you understand the types of fees charged for your plan. To raise your retirement plan fee IQ:
- Access free DOL resources. Another avenue for deepening your plan fee expertise is to access the DOL’s library of plan fee-related education that has been developed for plan sponsors. One of its free publications, Understanding Retirement Plan Fees and Expenses, is designed to introduce plan sponsors to the types of fees that arise in a retirement plan and describe how the fees may be paid.
- Consult with your plan’s advisor. Your retirement plan advisor is an excellent source of education and information regarding plan fees. Your advisor can help you understand the broad range of fees that arise in connection with a retirement plan and explain when plan assets can be used to pay certain fees. Your advisor can also help you examine the costs that arise as a result of your chosen investment options, as well as fees assessed by plan service providers such as your recordkeeper and third-party administrator.
Define and Follow a Process for Collecting and Analyzing Service Provider Fee Information
The DOL’s service provider fee disclosure rules are designed to ensure that you receive the information you need to assess whether a service provider arrangement is reasonable. To show that you have met your obligation to collect and analyze service provider disclosures, consider the following:
- Develop a compliance action plan. You should identify who within your organization is responsible for overseeing plan service provider relationships and more specifically, who will collect and analyze the required fee disclosures as required by the fee regulations.
- Keep written records. Document your compliance with the service provider fee regulations. Keep written records indicating when you received each required disclosure, when it was reviewed, and the rationale for your decisions. Your advisor may be able to help you obtain or design a checklist or other tool to track your compliance.
- Benchmark fees. To assess whether a service provider’s fees are reasonable, the fee disclosure analysis regularly includes comparing the service provider’s fees against other service providers who deliver similar services (The Average 401k Plan is Wasting Money - Is Yours?). Your advisor can help you gather the information needed to benchmark your plan’s fees against those charged by other service providers to ensure they are reasonable. This information should be included in your compliance records.
- Promptly address nonresponsive service providers. If a service provider does not provide the required information, accepting services is generally prohibited by ERISA and a breach of your fiduciary responsibilities to the plan. The DOL regulations provide relief from the prohibited transaction rules if you provide a written notice to the service provider requesting the information, as soon as you discover the deficiency. If the service provider refuses or fails to respond within 90 days, you must notify the DOL. The DOL has developed on online process for satisfying the nonresponsive service provider notice requirement, which is available through the DOL website (www.dol.gov).
Retirement Plan Advisor Support
With the current spotlight on plan fees, your fee-related responsibilities can seem heavy, but keep in mind that you are not alone in facing this compliance challenge. As discussed throughout this paper, your retirement plan advisor is an important source of information and support. As you assess your duties regarding the service provider disclosure rules, you may wish to look to your advisor for help with some of the following tasks.
- Your advisor can create a process or secure resources to collect and analyze service provider information.
- Your advisor can provide benchmarking data to help you compare the fees of your service provider against other service providers to ensure fees are reasonable.
- Your advisor can also help you weigh fees against other elements that should be considered when selecting investments or services.
- Your advisor can help you define and document your decision-making process relative to your fee responsibilities.
- Your advisor can also serve as a gateway to understanding support services available through providers such as assistance for compiling and delivering participant disclosures offered by recordkeepers and plan administrators.
As the plan sponsor, the onus is on you to understand and manage plan fees within the ERISA framework. Enlisting your advisor as your guide through the maze of plan fee responsibilities is often one of the most important steps you can take toward regulatory compliance with these fee requirements.
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