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Fee Disclosure and Revenue Sharing – DC Plan Sponsors Struggle

Fee Disclosure and Revenue Sharing – DC Plan Sponsors Struggle. If you don’t understand or know about revenue sharing in your defined contribution (DC) plan, don’t feel bad – you are not alone. And if you struggle to understand the sometimes complicated and opaque fee disclosure forms required by the DOL under section 408b2, take comfort that most plan sponsors are in the same boat. At a TPSU program held at Loyola University in Maryland, the comptroller at a CPA firm voices her frustrations.

The controller of 110 person CPA firm based in the Baltimore area who is also a CPA is frustrated about attempts to understand fees in her DC plan. She receives fee disclosure forms but even with an accounting background, she struggles to understand them. And if there is confusion about what the fees are, it becomes difficult if not impossible to make sure that the fees are reasonable, a key component of a plan sponsor’s fiduciary responsibilities.

In fact, the CPA plan sponsor had never heard of revenue sharing and did not find the DOL required fee disclosure forms helpful.

The CPA firm is not alone. It is rare to find a plan sponsor who truly understands the complicated fee structure in small to mid-size plans which include a myriad of share classes and byzantine methods to compensate the various providers including the advisor. With the growing pressure by the rash of lawsuits on plan sponsors to negotiate the best fees possible and the fiduciary responsibility under ERISA to make sure that fees are reasonable, the current fee structure for most DC plans leads to frustration, as voiced by the Maryland-based CPA, as well as a severe lack of trust.

Which is why the CFO at the SMU TPSU program, for the sake of transparency, decided to shift to institutionally price funds that have zero revenue sharing while keeping the same types of investments if not funds. It’s all about share classes. As a result, everyone now knows who gets paid what and, as a result, he was able to lower overall fees.

So if you don’t know to the penny who gets paid what for the services provided and you don’t understand revenue sharing, you need to start a documented prudent process but also ask why your advisor has not already done this for you.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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