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An approach to plan fee reviews.

An approach to plan fee reviews.

| April 29, 2024

I was reading with great interest the latest survey from Callan's DC Research and Consulting Group. 74% of surveyed plan sponsors stated that they are focused on plan fees in 2024. Granted, of the surveyed retirement plans, 90% have more $200 million in assets and 58% have more than 10,000 participants. These are not small plans by any stretch. But here is an approach small plans might take.

The first part of a fee review can involve the Plan Sponsor reviewing the 408b2 fee disclosure. This disclosure should state what fees the plan is paying. The plan provider delivers this disclosure annually to the Sponsor.

I have seen some 408b2 disclosures that state the Sponsor needs to go to a different document to find the fees. Get it and do it. Also, I suggest signing or initialing and dating the 408b2 to show that the review was done and the Sponsor is aware of what fees are being charged.

Some of the more common fees a Sponsor may see are the Third Party Administration fee, possibly a record keeping fee, and even a per-participant-use fee. It is helpful to know what the plan is being charged.

Next, take a look at the 404a5 fee disclosure. This disclosure shows all the fees an employee might face. Sadly, this disclosure is not required to show fees in a uniform manner. One disclosure I reviewed started by showing every fee a participant might pay but listed the fees beginning with the most obscure/ rare. By the time a Sponsor got to more common fees, they were already two pages in! Again, sign/ initial/ date.

Investment fees must also be reviewed. In keeping with the Prudent Person rule, the Duty of Loyalty, and the Sponsor's Fiduciary duty, the investment share class should be the lowest available. This could be referred to as the "institutional" share class or the "R6" share class. If the plan has a financial advisor overseeing the plan, that person should also be monitoring the investment share class and suggesting needed changes.

Once the Plan Sponsor understands the fee structure, benchmarking the retirement plan (something that should be done every 3 - 5 years) will help the Sponsor understand if their fees are reasonable for the services received. The Department of Labor does not ask the Sponsor to find the cheapest provider of retirement plans but the Sponsor should be able to explain why they are with the provider they are with. Again, the financial advisor should assist with this.

A small plan must also review its fees. While this can be viewed as "yet another task in a long laundry list", it is important to stay on top of this. No one wants to be overcharged, right?