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COLLECTED WISDOM™ on 401k Plan Fees and Expenses

The issue of fees and expenses related to the operation of a 401k plan continues to draw great attention. We have pulled together a number of items that we think will give you a good feel for the issues you need to consider.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.

    

You may also find useful information also under the DOL's 408(b) Fee Disclosure Regulations page.

A Primer on Plan Fees

Abstract: One of the many duties plan fiduciaries have is to understand the fees and expenses charged to their employer-sponsored defined contribution plan. This is a guide to the different plan fee pricing models and the steps to take to ensure fees are reasonable.

Source: 401khelpcenter.com

Small Business 401k Fee Study

Abstract: Since launching its fee comparison service, Employee Fiduciary has accumulated a large database of 401k fees. This article is a summary of the fees they found for 121 401k plans with less than $2MM in assets. 401k fiduciaries can use this study to help evaluate their plan fees for reasonableness.

Source: Employeefiduciary.com, August 2016

Beware the 403(b) Fee Monster

Abstract: Investment fees matter. A lot. Sometimes numbers alone don't convey how damaging high fees are to savings. Meet the Fee Monster.

Source: 403bwise.com, August 2016

Excessive Fee Litigation Hits Education Sector

Abstract: The law firm of Schlichter, Bogard & Denton has now turned its attention to the education sector, filing separate class action lawsuits against three universities on behalf of over 60,000 employees in their defined contribution retirement plans, both 401k and 403(b).

Source: Ntsa-net.org, August 2016

401k Plans Still in the Crosshairs: New Cases Challenge Plan Fees

Abstract: Now that many of the cases contending that large 401k plans paid fees that were too high have been settled or decided, it would be tempting for sponsors of plans that haven't been sued to breathe a sigh of relief. They should not do so, because litigation continues unabated with new theories and new targets.

Source: Cohenbuckmann.com, July 2016

ICI Reports Continued Downward Trend in Mutual Fund Fees in 401k Plans

Abstract: The cost of investing in equity mutual funds through 401k plans fell again in 2015, marking a 31 percent decline since 2000, according to an annual research study that the Investment Company Institute.

Source: Ici.org, July 2016

401k Plan Sponsors Are Focused on Fees

Abstract: As more plan participants scrutinize 401k fees, plan sponsors are re-examining how much they're paying their service providers for plan administration, reveals the annual Retirement Planscape report by market research firm Market Strategies International.

Source: Shrm.org, May 2016

Excessive-Fee Suit Targeting 401k Plan Could Be 'Harbinger' for Industry

Abstract: A new class-action lawsuit targeting excessive 401k fees in a $9 million plan could herald a new frontier of sorts in this type of litigation. The suit, Damberg et al v. LaMettry's Collision Inc. et al, alleges plan fiduciaries breached their duties under ERISA for allowing excessive fees to be charged for investments and record keeping and administration.

Source: Investmentnews.com (registration may be required), May 2016

Cogent Report: Fees Most Common Reason for Switching Recordkeepers

Abstract: Report found that plan administration fees are the most common reason for switching recordkeepers, and likewise are an important driver of satisfaction and loyalty when client expectations are fulfilled. Importantly, the aspect of providing good value for the money is the leading enhancer to brand consideration this year, reinforcing the point that plan sponsors are seeking value from a provider.

Source: 401khelpcenter.com, May 2016

Determining the Reasonableness of Retirement Plan Fees

Abstract: Fees paid for retirement plan investments and services have always been an important consideration for ERISA fiduciaries. However, in recent years these fees have come under increased scrutiny. This 8-page Vanguard paper walks plan sponsors through their fiduciary duties pertaining to fees. The paper discusses a variety of steps and tools to help determine the reasonableness of plan fees.

Source: Vanguard.com, March 2016

Don't Be a Target -- Retirement Plan Fees and Expenses

Abstract: A rising number of challenges are being initiated by the plaintiffs' bar and DOL investigators in the area of retirement plan asset charges and retirement plan expenses. Retirement plan sponsors and other plan fiduciaries should take heed of this trend and consider taking the actions outlined here.

Source: Poynerspruill.com, March 2016

Assessing Fee Fairness: Characteristics of an Effective Plan Fee Structure

Abstract: This 14-page paper develops a set of four conditions for gauging the effectiveness of fee structures: adequacy, administrative ease, transparency, and fairness. These four standards will help plan sponsors satisfy their fiduciary responsibilities by ensuring administrative fees are reasonable and fairly distributed among participants.

Source: Tiaainstitute.org, March 2016

Allegations of Excessive Fees Predominant in ERISA Litigation

Abstract: An awareness of current ERISA litigation can help ERISA fiduciaries better understand their ERISA-mandated duties and facilitate compliance. Article lists cases that are good reminders of the importance of understanding the rules of ERISA.

Source: Francisinvco.com, February 2016

Fee Allocation in 401k Plans: Choose Your Model

Abstract: There are a number of options available to allocate plan expenses among participants. This article explores the three most popular models.

Source: Shrm.org, February 2016

How Should Retirement Plans Pay Their 401k Fees?

Abstract: Helping 401k plan sponsors navigate the fees they're paying to service providers and the various mechanisms through which to pay them is becoming an increasingly important component of 401k advisers' jobs.

Source: Investmentnews.com (registration may be required), February 2016

Fee Allocation in Retirement Plans

Abstract: There are numerous options available to allocate plan expenses among participants, each having its own positive and negative attributes. Paper explores the three most popular models and the associated benefits and drawbacks.

Source: Cammackretirement.com, February 2016

Attorney Schlichter Preps New Round of 401k Suits

Abstract: Jerome Schlichter, a trailblazer of the 401k fee litigation that's proliferated in the U.S. over the past decade, seems to be gearing up for another round of class-action complaints. He is riding on a wave of success, broadening growth of similar 401k legal battles and the wind-down of older suits.

Source: Investmentnews.com (registration may be required), January 2016

Low 401k Fees Aren't a Legal Cure-all

Abstract: The class action lawsuit filed against Anthem Inc. over the fees paid by participants in its 401k plan is a warning to companies sponsoring such plans, and those advising them, that low fees aren't enough to protect against such suits.

Source: Investmentnews.com (registration may be required), January 2016

A New Fee Challenge for Retirement Plan Sponsors: Levelization

Abstract: Plan sponsors, as a whole, are unaware that participants pay disparate fees, and service providers, particularly recordkeepers that receive revenue-sharing payments, are not going to address it, experts say. It is incumbent on sponsors, then, to ask their plan advisers and recordkeepers about fee levelization.

Source: Plansponsor.com, January 2016

Assessing Fee Reasonableness by Implementing a Prudent Process

Abstract: Author discusses the third step in a three-step process of assessing the reasonableness of service provider arrangements and fees.

Source: Erisafiduciaryadministrators.com, November 2015

The Real Cost of Fees

Abstract: Based on the findings in this 23-page report, there is a wide range in the cost of fees associated with investment accounts, yet even the lowest average cost represents hundreds of thousands of dollars in lost savings. If the capital currently lost to fees remained invested, retirement savings could increase by an equally significant amount.

Source: Personalcapital.com, October 2015

2015 DC Plan and Fee Survey: What a Difference a Decade Makes

Abstract: NEPC's Defined Contribution practice group conducts an annual defined contribution plan and fee survey to help plan sponsors understand the fees, pricing, and structure of their defined contribution plans. This 2015 survey includes data from 116 plans, encompassing over 1.4 million plan participants.

Source: Nepc.com, October 2015

Is Everyone Paying Their Share of 401k Fees?

Abstract: Continuing focus on defined contribution plan fees by litigators, regulators and the media has made it clear that fiduciaries must understand and determine "reasonable" fees being paid from a DC plan. Equally as important, though not as widely discussed, is consideration of whether existing payment methods fall disproportionately among participants.

Source: Xerox.com, September 2015

The Economics of Providing 401k Plans: Services, Fees, and Expenses

Abstract: This 32 page report concludes that the downward trend in the expense ratios that 401k plan participants incur for investing in mutual funds continued in 2014. The average expense ratio that 401k plan participants incurred for investing in equity mutual funds fell from 0.58 percent in 2013 to 0.54 percent in 2014.

Source: Ici.org, August 2015

Benchmark DC Plan Fees Now to Lower Your Personal Risk

Abstract: Continuing focus on DC plan fees by litigators, regulators and the media has made it clear that fiduciaries must understand and determine “reasonable” fees being paid from a DC plan. Since fiduciary liability is personal, sound risk mitigation calls for a rigorous process to establish reasonable fees on an ongoing, regular basis.

Source: Xerox.com, August 2015

Best Practices for 401k Fees

Abstract: Here are 10 steps designed to assist employer-fiduciaries in meeting their fee-related responsibilities, reducing the risk of fiduciary liability and increasing the value of the employer's 401k plan to participants.

Source: Poynerspruill.com, May 2015

How to Unearth Hidden Fees in 401k Plans

Abstract: Opaque fee structures lurk among the complexities of 401k plans, meaning that sponsors might be leaving money on the table. Awareness of the inherent costs can help streamline management of defined contribution plans while keeping within regulatory guidelines.

Source: Institutionalinvestor.com, March 2015

Three Easy Steps for Small Businesses to Evaluate 401k Fees

Abstract: Contrary to popular belief, it can be easy for small businesses to cut through the red tape and evaluate their 401k fees, even the ones that don't appear on a Form 5500 or quarterly statements. You just need to know where to look for fees and how to benchmark them.

Source: Marketwatch.com, February 2015

ERISA Fee Litigation: Is My Plan at Risk?

Abstract: In light of these recent court settlements, plan sponsors may have wondered if their plan could be susceptible to an ERISA case over excessive fees. Here are a few things to consider.

Source: Retirementtownhall.com, January 2015

Benchmarking -- All About That Fee

Abstract: ERISA 408(b)(2) is designed to provide a responsible plan fiduciary with sufficient information to determine if fees are reasonable and conflicts are avoided. A practical approach to benchmarking fees in a manner that complies with 408(b)(2) is outlined here.

Source: Fraplantools.com, December 2014

Fee Compression Slowing, Fee Structures Changing

Abstract: Asset levels continue to peak in defined contribution plans, driving fees tied to asset levels higher in the investment management as well as recordkeeping and administration marketplaces. However, after three straight years of material compression in recordkeeping and administration expenses, the market may have found equilibrium.

Source: Multnomahgroup.com, December 2014

Evaluating Plan Expenses: A Road Map of Possible Routes and Potholes to Avoid!

Abstract: It is important for plan fiduciaries to understand that while certain plan expenses can be paid out of plan assets, such expenses must be reasonable. A plan fiduciary must also evaluate and defray investment fees and expenses as part of that process because such costs could have a significant impact on plan investment returns. Therefore, to fully satisfy his/her fiduciary obligations with respect to a plan, each fiduciary should understand how to evaluate the myriad of plan fees, including unraveling those associated with various plan investments and plan services. This article provides guidance.

Source: Drinkerbiddle.com, December 2014

Shining a Light on ERISA Budget Accounts

Abstract: This seven page paper discusses the historical practice of paying plan expenses from revenue sharing and the fiduciary and administrative considerations of using an ERISA budget account for managing recordkeeping revenue.

Source: Vanguard.com, September 2014

The New Era of Fee Transparency: Making Sense of the Details

Abstract: Assessing the reasonableness of fees as a result of 408(b)(2) regulations has put an increased burden on the already busy shoulders of retirement plan sponsors. Yet one of the most important fiduciary responsibilities of plan sponsors is to understand the services being provided and ensure that the fees charged to the plan are reasonable. This paper will help you build best practices for evaluating plan fees and determine whether you are striking a balance between the fees you pay and services you receive.

Source: Baml.com, September 2014

Fee Equality: Leveling the Playing Field for Participants

Abstract: Employers don't usually intend to charge fees unfairly, but may be surprised to know that fees are often inadvertently structured inequitably. Fee equalization can eliminate fee imbalances across the participant base to help plan sponsors embed fundamental fairness into the plan. This paper examines the ways in which traditional fee structures create imbalances among participants and consider ways to equalize fees.

Source: Am-a.com, September 2014

Inside the Structure of DC/401k Plan Fees

Abstract: As part of an ongoing comprehensive research program, the Investment Company Institute and Deloitte Consulting have prepared this third edition of the Defined Contribution/401k Fee Study. Specifically, this report addresses and updates: The mechanics of defined contribution plan fee structures; Components of plan fees; and Factors that impact fees ("fee drivers").

Source: Ici.org, August 2014

The Economics of Providing 401k Plans: Services, Fees, and Expenses, 2013

Abstract: To provide and maintain 401k plans, employers are required to obtain a variety of administrative, participant-focused, regulatory, and compliance services. All of these services involve costs. This updated study looks at those costs. Key findings include plan participants investing in mutual funds tend to hold lower-cost funds, the expense ratios that 401k plan participants incur for investing in mutual funds have declined substantially since 2000, and the downward trend in the expense ratios that plan participants incur for investing in mutual funds continued in 2013.

Source: Ici.org, July 2014

Infographic: Breakdown of Small Plan 401k Fees

Abstract: Here is a great Infographic from the 401k Averages Book offering a breakdown of small 401k retirement plan fees.

Source: 401kfeedisclosure.com, July 2014

How to Effectively Manage Total Plan Costs

Abstract: To help workers secure a more healthy financial future, Aon Hewitt urges employers to take a closer look at their defined contribution plan costs and make sure they are distributed consistently among all employees, no matter their investment selection. Offers some tips.

Source: 401khelpcenter.com, June 2014

Compliance Refresher: Fee Disclosures and Comparative Charts

Abstract: Since June 2012, service providers to retirement plans have been required to disclose to plan sponsors the compensation they receive for their services. This article reviews these required disclosures, changes that have been made, and deadlines.

Source: Wagnerlawgroup.com, June 2014

ERISA Fee Disclosures: Best Practices for Fiduciaries

Abstract: In response to intense public scrutiny and a series of lawsuits brought against plan sponsors and fiduciaries concerning the compensation paid to 401k service providers, the DOL created a three-part fee disclosure initiative aimed at greater transparency for the benefit of such plans and their participants. In addition to changes to Form 5500, Schedule C reporting, the DOL issued two final regulations: (1) a regulation on participant-level fee disclosure, and (2) a regulation on plan sponsor-level fee disclosure. It is now up to plan sponsors and participants to use the disclosure information obtained as a result of these initiatives in a manner that yields prudent and effective investment decisions.

Source: Erisa-Lawyers.com, April 2014

DC Fee Management -- Mitigating Fiduciary Risk and Maximizing Plan Performance

Abstract: Effective fee management is a critical component in maximizing retirement readiness and minimizing fiduciary risk. DC plan fees are the target of intense scrutiny from legislators, regulators, and litigators, and lawsuits continue to grab headlines. This paper on DC Fee Management will help plan sponsors to ensure DC plan fees are competitive and appropriately allocated, and assist committee members in satisfying their fiduciary requirements.

Source: Mercer.com, November 2013

Life After Fee Disclosure

Abstract: While participants usually don't have any choice when it comes to which plan they can join, they can use fee information to pressure sponsors into negotiating for a better deal. And plan sponsors can use the data to go out to other vender's with an RFI and RFP asking for competitive bids. Not only does this allow plan sponsors to provide participants with a better plan, but should the DOL's come calling, the plan has proof that it's fulfilling its fee disclosure duty and demonstrated prudence under the new regs.

Source: Benefitspro.com, June 2013

Paying Employee Benefit Plan Expenses

Abstract: This article describes the types of expenses that may and may not be paid from the assets of an employee benefit plan. It also explains the requirements that must be met before expenses can be paid from plan assets, the methods for allocating expenses between plans and among plan participants and the consequences of paying improper expenses from plan assets.

Source: Groom.com, June 2013

PSCA's Fee Disclosure Snapshot Survey Results

Abstract: PSCA's snapshot survey on the impact of fee disclosure regulations on participants was conducted in October 2012, and received 176 responses from defined contribution plan sponsors. The fee disclosure information that participants received seems to have had little impact their behavior.

Source: 5500audit.com, April 2013

Infographic on 401k Plan Fees

Abstract: For most the world of 401k investing can be confusing. With so many terms and numbers to remember, learning all the terminology can be just like learning a new language. And with the recent release of 401k fee information, 401k participants are expected to decipher a handful of new terms. This Infographic will help you better understand the nuts and bolts of 401k plan fees.

Source: 401khelpcenter.com, November 2012

Proper Advisor Benchmarking Values Facts Over Opinions

Abstract: Plan sponsors that have hired an advisor without a documented process to support the hire are vulnerable to claims of fiduciary breach of loyalty and prudence as well as potential claims of self-dealing and conflicts of interest. Although not anticipated, ERISA 408(b)(2) and 404(a)(5) may become the death knell for lifetime members of the "good old boy network" that have relied on their relationships -- instead of the knowledge, experience and skill -- to secure retirement plan engagements.

Source: Fiduciary Risk Assessment, October 2012

Proposal Games: Why You May Not Know What Your 401k Plan Will Cost

Abstract: When a plan sponsor goes to evaluate potential 401k service providers, will they be able to determine and understand how much their plan will cost? Author says, "Unfortunately, this can be quite difficult, as many providers have tried to gain a competitive edge by playing 'proposal games.'"

Source: 401khelpcenter.com, October 2012

Slicing and Dicing Retirement Plan Fees: Allocation Considerations for Plan Sponsors

Abstract: In the wake of new fee disclosure rules, plan sponsors have increased their focus on how recordkeeping fees are allocated across participant populations. Beyond ERISA's general fiduciary requirements, there is limited legal guidance directly addressing how to allocate fees. This white paper addresses the fiduciary standards applicable to such allocation decisions.

Source: Vanguard, October 2012

Checklist for Retirement Plan Sponsors in Reviewing Fee Disclosures From Service Providers

Abstract: While the DOL has not yet issued meaningful guidance as to what specific actions are required by responsible plan fiduciaries with respect to the service provider fee disclosure regulations that took effect on July 1, 2012, This checklist is a practical guide for responsible plan fiduciaries to address their initial obligation when they receive the relevant disclosures from service providers.

Source: Patterson Belknap Webb & Tyler LLP, September 2012

Inside the Structure of Defined Contribution/401k Plan Fees

Abstract: This study was designed to analyze and identify the drivers of defined contribution plan fees. It addresses: 1) The mechanics of defined contribution plan fee structures; 2) Components of plan fees; and 3) Primary and secondary factors that impact fees.

Source: Deloitte, September 2012

See How Your Company's 401k Plan Stacks Up in Three Simple Steps

Abstract: If you're one of the many business owners with a 401k plan, you probably just received an important 401k plan fee disclosure document from your plan administrator that reveals, in greater detail than ever before, just how much you and your employees are paying in fees. And while that document provides a lot of answers, it may also beg a few important questions.

Source: Forbes, July 2012

The 408(b)(2) Fiduciary Conundrums: Defining, Implementing, and Monitoring Your 401k Plan's Value Proposition

Abstract: The new 408(b)(2) fee regulations require 401k fiduciaries to make sure that the vendors' fees are "reasonable." Unfortunately, the term "reasonable" is not defined. So, what does it mean for a fee to be reasonable?

Source: Investmenthorizons.com, June 2012

The Latest in Revenue Sharing and Excessive Fees

Abstract: As a Plan Fiduciary, you cannot rely on a non-fiduciary service provider with a conflict in interest to accept responsibility for their recommendations. In a recent court decision (Tussey vs. ABB, Inc., U.S. District Court, Western District of Missouri Central Division), a Company sponsoring a retirement plan (ABB, Inc.) along with the head of the Benefits committee, named individually, and the entire committee, were ordered to pay a judgment of $35.2 million.

Source: Asset Strategy Consultants, April 2012

Finally the Final...408(b)(2) Regulation

Abstract: The Department of Labor has issued the long-anticipated final service provider fee disclosure regulation. In finalizing the regulation, the DOL extended the compliance deadline from April 1, 2012, to July 1, 2012. In this article, Fred Reish and Bruce Ashton describe what the amendment says and what they think are the most important changes; in a subsequent piece, they will explain the impact on various service providers.

Source: Drinker Biddle & Reath LLP, February 2012.

Fee Disclosure Overview for Plan Sponsors and Their Advisors

Abstract: This year the Department of Labor is implementing two new regulations regarding fees and fee transparency for retirement plans. This is a summary of the provisions of the new regulations and how plan sponsors and participants will be affected.

Source: Sentinel Group, January 2012.

Fact Sheet on Final DOL Fee and Expense Disclosure Rule

Abstract: This is the DOL's fact sheet on their final 401k fee and expense disclosure rule which will apply to plans with a plan year beginning on or after November 1, 2011.

Source: U.S. Department of Labor, October 2010.

DOL Fee and Expense Disclosure Rule - Model Comparative Chart

Abstract: The DOL's final 401k plan fee and expense disclosure rule requires that plan sponsors furnished participants a chart designed to facilitate a comparison of each investment option available under the plan. This is a model comparative chart prepared by the DOL which may be used by to satisfy the rule's requirement.

Source: U.S. Department of Labor (Word Document), October 2010.


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