Plan sponsors are often confused about the role that record keepers, money managers, advisors and third party administrators (TPAs) plan in their 401k or 403b plan. Even more confusing are the fees and the vocabulary used especially when the services are bundled. A 403b plan sponsor with 250 employees attending a TPSU program held at the University of Chicago explains her frustrations and how knowledge has helped empower her.
The VP of HR was confused because their record keeper was also managing the money and acting as the advisor. So are the fees reasonable? Hard to tell because they are bundled. How much is she paying for each individual service? She is also confused by bps or basis points as are most plan sponsors – she would prefer percentages or, better yet, dollar amounts.
So after meeting with advisors who claimed that the 403b plan was being overcharged, she went back to her record keeper who used different language to explain their fees without setting out the expenses for each individual service. It is one of the issues of bundling especially if the record keeper in also managing plan assets.
It is essential and a core fiduciary responsibility of a plan sponsor managing a 401k or 403b plan under ERISA (Employee Retirement Income Security Act) to make sure that fees are reasonable starting with what are the costs for all outsourced services. Though bundled services typically mean that the record keeper also performs administrative services not using an independent TPA, some record keepers also manage the money and act as advisor to the plan and their employees. That type of bundling makes it very difficult to determine fees and whether each bucket is reasonable.
Plan sponsors have to remember one key fact that sometimes large record keepers forget. They are the client have the power to make changes when needed or desired and that explanation of fees have to make sense spoken in a vocabulary they understand. Which is why it is so important to hire a qualified fiduciary advisors not affiliated with the provider or money manager acting as the interpreter and negotiator.
