Reminder: Plan Fiduciaries are responsible for managing fee risks. Not paying close attention to retirement plan fees and how vendors are compensated could leave your organization vulnerable to fiduciary risk, lawsuits, and enterprise-wide economic and reputational liabilities.
A recent report from Roland Criss Fiduciary Services spotlighted why it’s important for plan sponsors to prudently manage ERISA retirement plans. Organizations that sponsor retirement plans are required to protect their employees from overpaying vendors that service 401(k) and 403(b) plans. According to Roland Criss: “Failure to do so is a breach of their fiduciary duty and a violation of the Employee Retirement Income Security Act (‘ERISA’). Complaints about excessive vendors’ fees are high on the list of reasons that employees file complaints against their employers with the U.S. Department of Labor.”
Under the ERISA “fee rule,” vendors must disclose details about their fees. Plan sponsors must evaluate expenses paid for their plans’ administration and investment-related services, ensuring that they are fair and reasonable for the service being provided. A proliferation of consolidation among retirement plan vendors in recent years has left plan sponsors with fewer choices. Additionally, mergers and acquisitions among registered investment advisors (RIAs) have blurred the lines of fiduciary responsibility when non-fiduciary broker-dealers and banks acquire RIA firms or launch RIA subsidiaries of their own.
According to the Roland Criss report, as plan sponsors evaluate retirement plan fees, “an unreasonable fee is an excessive fee.” Despite downward pressures on fees due to the Fee Rule, increases in the use of Index Funds, and pricing changes for investment services, many plan sponsors continue to pay excessive fees in violation of ERISA. It’s possible many plan sponsors may be doing so without their knowledge, which puts them in violation of their fiduciary responsibility, presenting outsized risks to their retirement plan and organization.
So, what’s a plan sponsor to do? One option is to retain a fiduciary advisor that specializes in ERISA risk management services. According to Roland Criss:
“A fiduciary advisor, who is usually engaged as an Administrative Fiduciary under ERISA section 3(21), annually audits service provider fees, investment fund expenses, and fund performance, as well as manages plan governance.
The professional management of plan governance and compliance cuts enterprise and fiduciary risk and improves plan performance.”
Navigating the complexities of retirement plans can be challenging, especially when it comes to fees. Plan sponsors should conduct regular reviews of their retirement plan costs to ensure they’re compliant with the prudent management standards and rules set forth under ERISA, and that vendor compensation is reasonable for the services being provided.
Plan sponsors often don’t have the experience and knowledge necessary to make that determination, putting them at a disadvantage. Evaluating and reducing plan fees may require the assistance of a qualified professional. Plan sponsors should determine whether or not they need professional support when it comes to understanding the reasonableness of retirement plan fees, and hire outside consultants when necessary.
