The current economic climate encourages companies everywhere to try to do ‘more with less’. Plan sponsors are busy looking at their bottom line and trying to increase productivity while reducing staffing and determining how best to provide and manage their employee’s retirement benefits.
While plan fiduciaries have been tasked to futilely try to adequately manage their retirement plan benefit in this cost conscience environment, the risk of being sued for breaching their fiduciary duties has grown exponentially.
So we find employers and fiduciaries betwixt and between trying to lower costs and increase productivity while attempting to provide a suitable retirement solution to plan participants. This perfect storm exists for plan fiduciaries as they attempt to manage their plan in our culture. This has prompted plaintiffs’ attorneys to circle like vultures over a bloated carcass which in this case, is a 401k with excessive fees.
Expenses, Expenses, Expenses and Disclosures
In an effort to increase transparency and improve retirement security for plan participants, the Department of Labor (DOL) enacted final regulation rule 408(b)(2). In an attempt to shed some light on the ongoing and complex issue of fees and expenses---with regard to qualified plans---the DOL has finally required fee disclosure notifications be sent to every plan sponsor and participant. Even with the new disclosure regulations in place, plan sponsors, fiduciaries, and participants are not being told exactly how much they are paying.
This fee disclosure regulation is an admirable effort to promote fee transparency, although it clearly doesn’t go far enough. The DOL and covered service provider’s new disclosures do not discuss the associated and additional plan costs. Thus, fiduciaries and participants do not realize they don’t know about these associated costs. We could write an entire article regarding these additional, common fees which are undisclosed such as sub-TA fees, 12b-1 fees, finders fees, trading fees, transaction fees, brokerage fees, etc.
Sure all covered providers are required to disclose their fees, but in reality this disclosure only opens a tiny window into the dark, murky abyss also known as 401(k) fees.
In an effort to keep the buzzards at bay and lead you out of the 401(k) fee abyss, we will outline some action steps.
A plan fiduciary’s primary duty is to act in the best interest of plan participants and their beneficiaries in a manner with prudent care---so simple to state, yet causes much consternation. Succinctly, a plan fiduciary must:
1.Defray reasonable expenses
In order to accomplish this reasonable yet mystifying standard, a plan fiduciary is implored too:
1.Seek an objective, independent, registered investment adviser which specializes in qualified plans who can act as your co-fiduciary for assistance.
2.Consistently measure your plan provider’s costs and services provided.
3.Document and memorialize all processes, committee meetings and procedures.