Are You Reviewing Your Retirement Plan Fees Regularly? Here’s Why You Can’t Afford to Skip This Step
What if you discovered that high fees were impacting on your retirement plan participants’ savings and potentially placing fiduciaries to liability for failing to act prudently and solely in the interest of participants? The Department of Labor (DOL) cites excessive fees as a major factor in ERISA violations. Research indicates that even a 1% increase in fees can reduce a participant’s retirement savings by up to 20% over 30 years, based on industry estimates. ₁
As a plan sponsor, regularly reviewing your plan’s fees is a fiduciary responsibility under the Employee Retirement Income Security Act of 1974 (ERISA). This includes ensuring that all fees, including recordkeeping and investment management, are reasonable and necessary. Neglecting this can lead to compliance issues, legal risks, and diminished participant outcomes.
Learn why fee oversight is important and how you can take proactive steps to protect your plan and its participants.
Why Reviewing Plan Fees Matters
Cost Management: Competitive fees can positively impact participants’ retirement savings. By identifying and negotiating lower fees, a larger portion of each contribution accumulates over time. For instance, reducing recordkeeping fees by $50 per participant annually can significantly increase their savings over the years.
Fiduciary Duty: Conducting regular fee reviews demonstrates diligent oversight, safeguarding against potential ERISA violations. Given the DOL’s heightened scrutiny on plan expenses, it’s imperative to thoroughly document the review process.
Transparency: Clear communication about fees builds trust, ensuring employees understand costs and boosts their confidence in the retirement plan and your leadership.
Your Next Steps to Ensure Fee Compliance
- Benchmark Fees: Use benchmarking tools or a third-party consultant to compare your plan’s fees with similar plans identifying outliers and cost-savings opportunities. Are your investment management fees aligned with funds of comparable size and performance?
- Review Service Agreements: Examine contracts with recordkeepers, advisors, and other providers to understand fee structures. Pay attention to bundled services or revenue-sharing arrangements, which can affect the transparency of costs. Consulting annual reviews ensures that fees remain appropriate as your plan evolves.
- Communicate Clearly: Disclose fee information to participants in a straightforward manner, such as through annual fee disclosures or summaries for easy understanding. This transparency allows employees to make informed decisions regarding their financial future.
- Document Your Process: Maintain clear records of fee review activities, including benchmarking results, meeting notes, and decisions. This validates fiduciary diligence and provides defense against regulatory inquiries or participant challenges.
Act Now to Protect Your Plan and Participants
Under ERISA, fiduciaries are required to act with care, skill, and diligence. Reviewing your retirement plan’s fees on a regular basis is an effective way to fulfill this duty, manage costs, and protect participant outcomes. Assessing your plan’s fee structure is a simple action that can have significant effects.
For any further questions, please feel free to reach out to me at sahsan@mjlm.com.
Stay tuned for more practical tips to keep your retirement plan compliant and participant focused.
References:
₁ How ERISA Fiduciary Breaches Impact Your Retirement Account | Call 24/7
Hidden Retirement Drain: Study Reveals the Cost of Excessive Plan Fees and Fiduciary Failures
