Retirement Plan – It’s Never Really Free
Understanding fee arrangements within retirement plans is imperative for a plan sponsor. While there is a number of ways that an employer can pay for a retirement plan, the process by which they come to their decision must be prudent and thoughtfully documented. Moving from a revenue-sharing arrangement to a fee-for-service system, for example, may offer some benefits (simplified fee disclosure, lower cost investments, etc.) but with it, may come additional questions as well.
Revenue sharing is a practice in which investment vehicles (commonly mutual funds) pay out a portion of their fees to a service provider, in order to reduce or offset administrative costs that might customarily be a function of the fund itself. In a retirement plan, for instance, many of these tasks are carried out by a service provider (for example, a recordkeeper producing daily account balances for participants). In such a scenario, the fund may pay revenue share to the recordkeeper as means of compensation for services rendered.
