Be wary of any retirement service provider who doesn’t send you a bill. Your retirement plan adviser and other service providers are getting paid from somewhere. If it isn’t directly from you, then it’s likely from fees and commissions paid by the investment options in the plan (your participants), and those fees and commissions can be costly. Not only is the commission model frequently costly for plan participants, it can also create conflicts of interest when provider compensation is based on the investment products recommended to clients and selected by participants.
To aid participants in developing a better understanding of retirement plan fees, the Department of Labor now requires providers to disclose their compensation under Section 408(b)(2). With this data in hand, plan sponsors are left to determine whether their retirement plan fees are reasonable in light of the services being rendered.
Like most aspects of ERISA compliance, plan sponsors are supposed to possess knowledge and exercise good judgment. To that end, sponsors should understand what all of their service providers do for a fee and how that fee is determined. From there the question is not simply who pays the least, but who provides which services and receives reasonable compensation. Bearing in mind the fee reasonableness standard, we know that steak is more expensive than packaged ramen. However, in retirement plans, determining whether you have steak or ramen is difficult, and finding comparative data is even harder.
If you find yourself drowning in this process, we can throw you a life preserver. Click the button below to request our complimentary white paper, Guide to Retirement Plan Fees & Expenses. We’ll get you going on the process of determining your plan fees compared to alternatives, and help you evaluate how reasonable they are given the services being provided to your plan.
