Retirement plan fees are complex. Between administration, investment management, recordkeeping, consulting, revenue sharing, sub-TA and 12b-1, it isn’t always clear to plan participants or plan sponsors exactly the purpose and value of all of these fees. It also isn’t clear as to who these fees are benefiting and who, therefore, should pay for them.
ERISA Section 408(b)(2) states that plan fiduciaries have to determine whether the services agreements and compensation of service providers are “reasonable.” The rule requires service providers to supply plans with disclosures to help them determine if fees are “reasonable.” Your plan's investment advisor should help you with this complex determination by identifying:
- Total plan cost and its component parts
- The primary drivers of retirement plan pricing
- The role and appropriateness of revenue sharing
The three main components are administrative fees, investment fees and financial professional fees. Financial professional and administrative fees are often shared between the plan sponsor and the participants. Investment fees are typically paid by participants and deducted from plan assets.
Primary Pricing Drivers
Several key factors can impact plan pricing. Typically, the larger the plan in terms of assets and average participant account balance, the lower the plan fees. Other factors include:
- Number of plan participants
- Service requirements
- Plan design features
Revenue sharing includes payments made by investment managers to service providers or plan consultants for a portion of the revenue generated from the management of a particular fund or funds. Historically, such allowance may or may not be known to a plan sponsor. Regardless, it’s imperative that plan sponsors with fiduciary oversight of their organization’s retirement plan understand the distribution systems that most investment management organizations use and how they share revenue.
The most common forms of revenue sharing can include 12b-1 fees, shareholder servicing fees and sub-transfer agent (sub-TA) fees. In some instances, a portion of the investment management fee for proprietary funds may include some revenue sharing. The diagram below illustrates potential fund expenses.
Fiduciary Best Practices
Best practices dictate that plan fiduciaries must go through a prudent, comprehensive, and measurable process of monitoring and documentation to ensure that only reasonable fees are being paid. This process includes:
- An experienced consultant with expertise on retirement plan fees & their components
- Analyzing and documenting all fees from service providers
- Reviewing fees annually compared to normative data as a second opinion on reasonableness
- In-depth, live-bid benchmarking of fees, services and investments compared to alternative providers every three
years to ensure reasonableness, competitiveness and appropriateness of fees and services
How Stonebridge Can Help
It can be a bit overwhelming to administer a company retirement plan, given all the documentation nuances let alone the deadlines! At Stonebridge Financial Group, we work exclusively with retirement plans and can help you with everything from designing to running your plan. Delegating fiduciary responsibilities can be a great solution for plan sponsors who lack time and the knowledge of ever-changing requirements to manage a retirement plan -- it's is all we've done since our inception back in 2004! Our robust service offering starts with ERISA 3(21) and 3(38) services and is the tip of the iceberg. We are consultants that help you with every aspect of your plan:
- Fee benchmarking
- Implementing cybersecurity best practices
- Ensuring participant retirement readiness
- 1:1 and group participant education and retirement readiness meetings
- Consulting on financial wellness
- Committee fiduciary training
- Process creation and documentation
- Plan design
- Contribution match modeling
- Annual plan compliance review
- And so much more
We become your outsourced retirement plan officer who dives into the morass of retirement plan details and resolves issues so you don't have to!
Please click here to schedule a short call, give us a call at (855) 530-0500 x601 or email firstname.lastname@example.org. We look forward to helping your committee successfully fulfill their fiduciary duties with ease and excellence!