The duty to pay reasonable fees for your plan services and to act solely in the best interest of participants has been a key tenant of ERISA since its passage. Plan sponsors employing a disciplined and diligent approach to reviewing and negotiating fees can feel confident in their compliance with this area of responsibility.
The DOL has implemented a three-step approach to assist plan sponsors in fulfilling their Fiduciary obligations concerning fees by requiring disclosure to:
Your Fiduciary Responsibility Regarding Disclosures
Plan sponsors have a Fiduciary obligation to complete the disclosures to the government and participants and to ensure receipt of the disclosures from all the plan service providers. These materials can serve as a basis for plan sponsors to use in evaluating the reasonableness of plan costs.
Generally, if the expense relates to the administrative or investment actives of the plan, it can be paid from the plan assets. In a defined contribution (DC) plan, payments may be deducted from individual participant accounts or the plan’s forfeiture account.
ERISA is clear: Plan Fiduciaries must determine that any fees paid by the plan assets are reasonable based upon facts and circumstances relevant to that plan. The plan sponsor must obtain and consider relevant information and then make a prudent decision supported by that information. As with all Fiduciary duties under ERISA, it is important that plan sponsors follow a prudent process when deciding about the reasonableness of fees. Both the DOL and the courts generally defer to a plan sponsor that follows a prudent process and can demonstrate the rationale for its decisions.
Plan Cost & Disclosure Best Practices
Here are several Plan Cost & Disclosure best practices that we have identified and put into place with our clients:
In line with the DOL guidance, the most common methods of fee allocation are:
Understanding Plan Cost and Disclosures are just one of many Fiduciary best practices that we cover as part of our employer-sponsored retirement plan series. We designed this series to help support businesses of any size to help you reduce potential liability and provide a plan that best serves your employees.
Contact us for more information about any of these best practices or to see how we may better support your company and employees with a low-cost, high service employer-sponsored retirement plan.