Plan Sponsors are tasked with the fiduciary responsibility of determining fee reasonableness. The content on this and the next several pages are intended to help you understand the basics, the essentials and the benefits of satisfying this important obligation.
First, the “Basics”:
What are the duties of a Fiduciary?
Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. These responsibilities include:
- Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them;
- Carrying out their duties prudently;
- Following the plan documents (unless inconsistent with ERISA);
- Diversifying plan investments; and
- Paying only reasonable plan expenses.
What does the DOL say about 401(k) Fees?
“When you consider the fees in your 401(k) plan and their impact on your retirement income, remember that all services have costs. If your employer has selected a bundled program of services and investments, compare all services received with the total cost. Remember, too, that higher investment management fees do not necessarily mean better performance. Nor is cheaper necessarily better. Compare the net returns relative to the risks among available investment options. And, finally, don’t consider fees in a vacuum. They are only one part of the bigger picture including investment risk and returns and the extent and quality of services provider.”
Source: A Look at 401(k) Plan Fees, U.S. Department of Labor, October 2010
What does ERISA say about “reasonable fees”?
The Employee Retirement Income Security Act (ERISA) REQUIRES fiduciaries to make sure they pay only reasonable expenses to all service providers and investment managers. BUT…per the Department of Labor’s booklet on 401(k) Plan Fees: “don’t consider fees in a vacuum. They are only one part of the bigger picture including investment risk and returns and the extent and quality of services provided.”
How many times does the 408(b)(2) regulation touch on reasonableness?
The words “Reasonable” or “Reasonableness are referenced 49 times in the regulation.