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Pay Close Attention to Fees, Practitioner Warns

By John Iekel • August 25, 2017 • 0 Comments

The Sunshine Act has been around longer than all the Millennials. And fee disclosure has been required for years. And still, with all that — not to mention the advent of electronic means of research and communication — the head of a consultant firm in a series of blog entries warns employers and plan sponsors that it’s wise to pay close attention to defined contribution plan fees.

In “Making Sure 401(k) and 403(b) Fees Are ‘Necessary’ & ‘Reasonable,’” Fiduciary Plan Governance LLC CEO Edward Lynch reminds employers and plan sponsors of the importance of being aware of, and understanding, fees associated with a retirement plan. And in the process, he also provides a reminder to service providers that their clients may be closely watching fees, and are being encouraged to do so.

Lynch contends that paying close attention to fees can be easier said than done. “This is a challenge because plan fee structures are often opaque, complicated (needlessly so) and, sometimes, downright misleading,” he writes. “You are also required to ensure the services for which the plan is paying are necessary, meaning the plan wouldn’t function (or function as well) without them, and reasonable. Taken together these are one aspect of the ‘expert standard’ you are expected to meet to fulfill your plan management responsibilities,” he continues.

Shedding Even More Light

Lynch suggests that third-party resources can be useful in benchmarking fees. He does add a caveat, however — he cautions that benchmarking can only measure against historical data and does not include current information.

Much better, Lynch argues, is to use the request for proposals (RFP) process. He suggests that holding an RFP every three to five years can be helpful in understanding and controlling fees. This, he says, is because:

  • 401(k) and 403(b) markets are extremely competitive;

  • DC plan markets are constantly evolving and changing;

  • the RFP process can help in making sure service is satisfactory and is a good value; and

  • conducting an effective RFP incorporates decision-making and management skills used in the daily course of conducting business.

Lynch further offers some suggestions regarding how to go about the RFPs:

  • Do some pre-issue market research to help identify firms that specialize in working with plans the size of yours.

  • Don’t try to have an RFP do too many things; an RFP with 12 items, says Lynch, “is fully sufficient” in order to get necessary information.


  • Allow approximately four weeks to receive responses to the RFP.

  • Consider conversion/start-up services, ongoing services and transactional expenses.

  • Allow four to six weeks to review the responses, as it may be necessary to analyze the responses and ask respondents further questions.

Training the Beams

After the RFP process and the review, Lynch says, interviews with firms that responded provide another way to shine some light on services and the associated fees. He suggests a two-stage process.

The first stage is a web conference interview with semi-finalists to allow direct interaction with the prospective service provider’s sales and service teams, obtain a demonstration of their online experience and better focus an in-person interview if one takes place. Lynch suggests interviewing three prospective providers in final, in-person meetings. He further suggests using a numerical scoring system in order to add objectivity to the process.

Finally, Lynch argues, references should be checked as part of exercising due diligence — and he adds that seeking input from clients of a prospective service provider that are not in one’s industry could be helpful.

“The blocking and tackling of recordkeeping and plan administration applies regardless of your type of business and size,” Lynch remarks to employers and plan sponsors.

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