Reasonable DC Plan Fees
How do companies know if the DC plan fees they are being charged are reasonable? It’s a core function of a ERISA plan fiduciary, along with ensuring that the plan is designed in the sole benefit of the participants, and at the heart of the rash of 401k lawsuits. The subject was front and center at a TPSU program held in Atlanta with two practical questions from plan sponsors: should I do it myself; and will record keepers willingly cooperate in an open RFP.
Plan sponsor fiduciaries are held to a very high standard under ERISA as a prudent expert. For HR and finance people often thrown into the role of running their DC plan without much if any formal training, this standard can seem intimidating. As TPSU Adjunct Lecturer Paul Powell explains, “It’s hard for a plan sponsor to know which providers fit their company and demographics.” Although consolidation has whittled down the number of national record keepers to 40, there are still another 600 local record keeping TPAs. Knowing who to contact is just the first step – getting through all the proposals and spread sheeting them may be more daunting.
Most plan sponsors rely on their plan advisor to help them complete their provider RFP which is recommended every 3-5 years depending on the size of the plan and circumstances. Benchmarking should be completed annually. Most advisors like Powell use industry accepted software to complete the comparisons with providers feeding data into the systems to make the process simple and painless.
Which brings us to willingness. Ten years ago, record keepers were not so eager to be spread sheeted fearing that fees would become the dominant factor. As Powell suggests, “You have to look at all the services – record keeping, education, compliance and the quality of investments – when accessing fees.” Today, providers would prefer to participate in an RFP rather than find out that a low cost provider has won the plan. Remember, fees in the absence of value are always high. And if you don’t document your prudent process, according to the DOL, it did not happen.
Next up? Benchmarking and conducting an advisor RFP. Most advisors are reluctant – like record keepers 10 years ago – for the same reasons. Need help? Go to eRFP on 401kTV.
