The Employee Retirement Income Security Act ("ERISA") holds that a plan fiduciary must exercise due care to ensure that plan expenses applicable to plan participants are "reasonable." There are three major challenges for plan sponsors. First, there is no clear cut definition of what is "reasonable" when analyzing fees. Second, retirement plan providers have created a complex, cumbersome process for plan sponsors to
- Know what they are paying;
- To whom they are paying it, and;
- What to compare it against.
Third, if plan participants are paying any portion of the plan fees charged by a retirement plan provider, a plan sponsor’s responsibilities are heightened. Most plan sponsors have little understanding of what is being paid, the services being rendered, and are exposed to fiduciary liability because of it.
To adequately evaluate costs, a plan sponsor should
- Analyze Vendor structure and associated costs;
- Analyze Investment Fund costs including expense ratios, redemption fees, and revenue sharing arrangements;
- Review Advisor services rendered and compensation paid.
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Analyze and determine costs for participant education and other services.
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