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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.

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401k Fee Litigation: What Must a Plaintiff Allege to Survive a Motion to Dismiss?

This term the Supreme Court is considering -- for the first time -- critical issues in DC plan fee litigation, in Hughes v. Northwestern. This piece discusses the recent decision by the United States District Court for the Southern District of Ohio, dismissing plaintiffs' claims in Forman v. TriHealth, Inc. 401k Retirement Savings Plan Retirement Committee. Forman illustrates an issue that is also likely to be presented in Hughes: how fact-specific must plaintiffs' complaint be to survive a motion to dismiss?

Source: Octoberthree.com, October 2021

How Fiduciaries Can Help Protect Themselves from Excessive Fee Litigation

Employers that sponsor a retirement plan should be concerned with the risk of excessive fee claims, as the number of these has skyrocketed recently. Chubb's Alison Martin shares steps plan fiduciaries can take to reduce the chances of a lawsuit or increase their chances of successfully defending against one.

Source: 401kspecialistmag.com, October 2021

Fee Disclosures Aren't Working. Here's How to Fix Them

The GAO tested participant understanding of some sample fee disclosures, and the results were disappointing. Almost a decade after the DOL fee disclosure regulations became effective, it is clear that they are failing in their intended goal of demystifying retirement plan fees. Without waiting for the DOL to act, plan fiduciaries can implement the GAO recommendations and insist that their participants get disclosures that clearly provide the essential information they need to make investment decisions.

Source: Rpaconvergence.com, September 2021

Video: 20 Questions to Benchmark Your Retirement Plan

When was the last time you reviewed your retirement plan: 5 years ago, 3 years ago? If it has been over a year, it may be time to benchmark your retirement plan, but it doesn't have to be a chore this time around. This video clip outlines five main areas of your retirement plan and the questions you should be asking.

Source: Alliant401k.com, September 2021

How Often Should Plan Sponsors Review Their Plan Fees?

Without taking the proper measures of disclosing your fees or ensuring they're competitive and reasonable, your plan offerings probably won't seem as effective for your employees. As a sponsor, you should know that the higher your plan's fees, the less your employees will have to contribute to their plans. This is why you want to review your fees to make sure your employees can trust and depend on you to help them save for retirement. But how often should you review your plan fees?

Source: Planpilot.com, September 2021

Analyzing the BrightScope DC Plan Data in the Context of Excessive Fee Lawsuits

The annual report provides insights into plan design and trends and represents the most comprehensive data available to understand defined contribution plan fees. BrightScope has an express disclaimer that its report is for general information on fees and is not intended for benchmarking the costs of specific plans. But plaintiff lawyers often ignore this disclaimer and cite the report to support their excessive fee claims, and thus it is important to analyze the BrightScope data to evaluate how your plan compares. This article documents the significant trends and statistics in the BrightScope report.

Source: Euclidspecialty.com, September 2021

GAO Finds Most Participants Stumble Over Fee Disclosures

The DOL has required defined contribution plans to provide participants with information on plan and investment fees. During a 2010 news conference, then-Assistant Secretary of Labor of the DOL's Employee Benefits Security Administration Phyllis Borzi said fee disclosure rules are designed to "make sure everyone knows what they are paying for and how this affects plan balances." However, a recent Government Accountability Office study found this has not always been the case.

Source: Planadviser.com, August 2021

40% of 401k Participants Say Fees a Mystery, GAO Reports

Almost 40% of 401k plan participants do not fully understand the fees they are paying, a Government Accountability Office report released Thursday found. Moreover, 41% of participants incorrectly believe that they do not pay any 401k plan fees, according to the report.

Source: Pionline.com, August 2021

Service Provider Fee Disclosures: Understanding the Process

The DOL regulations regarding service provider fee disclosures clarify that plan fiduciaries are responsible for assessing the reasonableness of fees charged to plans in relation to services performed. Before a plan fiduciary is able to assess the reasonableness of plan fees, the fiduciary has to receive required fee disclosures from their covered service provider. A covered service provider is considered a party that enters into an agreement with a retirement plan to provide certain services.

Source: Berrydunn.com, August 2021

The Economics of Providing 401k Plans: Services, Fees, and Expenses, 2020

The study found that 401k 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 401k plan participants incur for investing in hybrid and bond mutual funds continued in 2020.

Source: Ici.org, July 2021

All in: Understanding the Total Cost of Your Retirement Plan

As the retirement plan industry continues to evolve, with new products and solutions announced daily, plan sponsors have to remain diligent that they fulfill their fiduciary obligation to their participants. PLANSPONSOR recently spoke to James about the need for transparency in the retirement plan industry and what plan sponsors should evaluate when examining costs.

Source: Plansponsor.com, July 2021

Best Practices to Reduce Excessive Fee Risk

The role of retirement plan governance has become increasingly important as employers face increased scrutiny of how they operate their 401k plans in the current legal and regulatory environment. CFOs and human resource managers administering 401k plans and serving on 401k plan committees have increasingly been held responsible for fiduciary breaches. Plan fiduciaries should conduct due diligence to reprice services and replace underperforming funds given asset-based fees and significant growth in plan size, due to rising markets and recurring contributions.

Source: Cpajournal.com, July 2021

The Economics of Providing 401k Plans: Services, Fees, and Expenses, 2020

Key findings: 401k 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. The downward trend in the expense ratios that 401k plan participants incur for investing in hybrid and bond mutual funds continued in 2020. This is a 32-page report.

Source: Ici.org, June 2021

Pitfalls in Evaluating Retirement Plan Fees

Benchmarking investment fees is an important function. It's more than that, it's critical to fulfilling your fiduciary duty. But "essential" does not translate to "easy," and there are some common pitfalls in performing that function. This article identifies common problems with benchmarking fees and mistakes that can be made, and how to avoid them.

Source: Asppa.org, June 2021

Understanding and Evaluating Retirement Plan Fees: Benchmarking Investment Fees

Benchmarking investment fees is essential to fulfilling a retirement plan sponsor's fiduciary obligation. However, it can be a complicated task. This article shares the importance of accurately benchmarking investment fees and how to overcome some common plan sponsor pitfalls.

Source: Captrust.com, May 2021

Retirement Plan Fees Worsen Enterprise Risk

A new era of employee activism is underway in which plaintiff lawyers find fertile ground for litigation opportunities, catching many employers unprepared. The focal point of the growing number of such lawsuits is the compensation that employers arrange for payment to the vendors of services to the ERISA plans. Underestimating the economic and reputational risks related to deficiencies in the prudent management of ERISA plans threatens an entire enterprise.

Source: Rolandcriss.com, May 2021

Two Approaches to Benchmarking Plan Fees

Benchmarking retirement plan fees has become more complex in recent years, as it has moved beyond just scrutinizing recordkeeping and administrative fees. There are two ways sponsors can benchmark their fees. There is the traditional approach of doing an external benchmark by issuing an RFI or RFP. The other approach is to use information from a database of plan sponsors to compare fees paid.

Source: Plansponsor.com, May 2021

401k Fee Study: 75% of Small Business Plans Pay Hidden Fees

Employers have a fiduciary responsibility to ensure the fees paid by their 401k plan are "reasonable" so excessive fees do not reduce the investment returns of plan participants needlessly. To do that job, employers should benchmark their 401k fees periodically by comparing them to industry averages and/or the fees charged by competing 401k providers. Sounds straightforward, but this information is hard to find and often harder to compare on an apples-to-apples basis.

Source: Employeefiduciary.com, April 2021

Understanding and Evaluating Retirement Plan Fees: Part One

With retirement plan fees serving as the centerpiece of ERISA fiduciary breach lawsuits, understanding fee dynamics is critical for plan sponsors and fiduciaries. This series explores the different types of retirement plan fees by taking an in-depth look at investment costs, provider fees, and fee allocation methodologies.

Source: Captrust.com, April 2021

The Key to Avoiding Retirement Plan Excessive Fee Litigation

The recent increase in litigation over retirement plans and, specifically, the fees those plans are being charged for administration and management, has many companies concerned about what they need to do to protect the plans they manage. Two recent federal district court rulings illustrate the necessity for plan sponsors to have a prudent decision-making process in place to successfully defend against excessive fee litigation.

Source: Hallbenefitslaw.com, April 2021

$40 Million Excessive Fee Settlement Okayed

One of the largest 401k excessive suit settlements has been approved. The settlement arose in a case involving Reliance Trust and its role regarding the Insperity 401k Plan, in which the plaintiffs were enrolled. The plaintiffs are four participants in this plan for Insperity clients. However, the settlement did not actually involve Insperity but was an agreement between Reliance Trust and the plaintiffs.

Source: Napa-net.org, March 2021

Over Half of Americans Surveyed Falsely Believe They Pay Low or No Fees to Manage their Retirement Accounts

Nearly three-quarters of Americans surveyed do not know how much they are required to pay in fees to manage their retirement accounts, according to a recent survey commissioned by investment management firm Rebalance. Over half of Americans surveyed (57%) falsely believe that they pay either no fees, or very low fees, to maintain their retirement investment accounts. Also, nearly one-quarter don't even know how much they pay in fees.

Source: Prnewswire.com, March 2021

401k Plan Fees Continued to Decline in 2020

The average total plan cost for a small retirement plan declined to 1.20% from 1.23% over the past year, according to the latest 401k Averages Book. The average total plan cost for a large retirement plan also declined, to 0.90% from 0.91%, Joseph Valletta, the author of the book, said in a release. Valletta defines small plans as those with fewer than 100 participants and up to $5 million in assets and large plans as those with more than 1,000 participants and more than $50 million in assets.

Source: Investmentnews.com (registration may be required), March 2021

The Art and Science of Fee Benchmarking

Fee benchmarking can be a great tool for plan sponsors to ensure that their plan fees are fair and reasonable and also help to fulfill a fiduciary responsibility. Since each fee benchmarking platform has a unique process for aggregating and reporting data, plan sponsors should consider how various data sources, pools of data or report customizations may impact the accuracy and reliability of the report.

Source: Rpgconsultants.com, February 2021

Employers Beware! Retirement Plan Disclosures Are Required Under 408(b)(2)

To fulfill their fiduciary obligations, plan sponsors need to ensure that service providers subject to 408(b)(2) rules satisfy their disclosure requirements under ERISA. If a service provider fails to meet their reporting requirements under 408(b)(2), the plan sponsor is required to act by sending the service provider a written request for compliance.

Source: Hallbenefitslaw.com, January 2021

Guide to Retirement Plan Fees

As a plan sponsor, you need to identify the fees incurred by your retirement plan and demonstrate a prudent process for monitoring these fees. Through this three-part article, you'll gain an understanding of the major cost components within your retirement plan, the options you have for paying those costs, and best practice strategies for allocating costs to plan participants.

Source: Francisinvco.com, October 2020

401k Fee Lawsuits: What Can a Plan Sponsor Do?

Most weeks, a plan sponsor is sued for breach of fiduciary duty in connection with the investment choices offered under its 401k or 403b plans. A few of these cases get dismissed early in the proceedings. A few go to trial, but most cases settle. Unless dismissed, these claims, whether tried or settled, often involve million-dollar recoveries. What can a plan sponsor do to establish the best record possible if the sponsor and its fiduciaries decide that they want to defend themselves?

Source: Foley.com, October 2020

Consider Who Is Paying When Benchmarking Retirement Plan Fees

Are plan sponsors' responsibilities for making sure retirement plan fees are reasonable different when the plan sponsor pays versus when plan participants pay? There is less risk when a plan sponsor pays retirement plan fees, but that doesn't necessarily mean the benchmarking should be different than if participants pay.

Source: Plansponsor.com, October 2020

Don't be Haunted by Plan Fees

Don't let plan fees scare you. Exorcise your fear by understanding the services performed by your service providers, how your providers are paid, and what their fees are. Then look at the fees charged by other providers to plans of a similar size to yours. Keep calm throughout the process knowing that DOL doesn't expect plan sponsors to have hired the cheapest providers.

Source: Alliant401k.com, October 2020

Webinar Recording: Recordkeeping Vendor Searches: More than Just Fees

Recordkeepers are a critical partner in a successful retirement plan and monitoring their services and fees is one of the most important duties of a fiduciary. Periodic benchmarking can help keep a plan's fees in line with the marketplace but is not a replacement for a full vendor search process, especially in light of the recent findings in the Banner Health case. This webinar covers the benefits of running a vendor search, the timeline for running a search, and best practices.

Source: Multnomahgroup.com, September 2020

The Economics of Providing 401k Plans: Services, Fees, and Expenses, 2019

At year-end 2019, 401k plan assets totaled $6.4 trillion, with 37 percent invested in equity mutual funds. In 2019, the average expense ratio for equity mutual funds offered in the United States was 1.24 percent. 401k plan participants who invested in equity mutual funds, however, paid about one-third of that amount -- 0.39 percent -- on average. The expense ratios that 401k plan participants incur for investing in mutual funds have declined substantially since 2000. This is a 32-page report.

Source: Ici.org, July 2020

Retirement Plan Excessive Fee Litigation Heats Up This Summer

Until recently, it appeared that plaintiffs' firms had taken a hiatus from excessive fee litigation targeted at large companies. Now there has been an uptick in fiduciary litigation involving 401k and 403b plans of private employers. Last month, at least three new excessive fee cases were filed in Wisconsin and at least seven additional excessive fee cases were filed in other jurisdictions.

Source: Quarles.com, July 2020

A Framework for Key Recordkeeping Fee Decisions

Several key recordkeeping fee decisions are important for prudent plan fiduciaries to analyze carefully. More often than in the past, when plan sponsors benchmark their plan fees, they often use the opportunity to evaluate the way fees are allocated to participants and to make changes to the way fees are paid. Three key recordkeeping fee decisions that go directly to the heart of the question of how fees should be allocated across participants are discussed in this article. First is the decision as to the type of recordkeeping fee structure. Second is the decision around using a lowest-cost share class strategy for the investment menu versus a revenue-sharing model. Last is the decision of how to apply revenue sharing when there is an active decision to use that model or when it is unavoidable.

Source: Porteval.com, June 2020

The War on Retirement Plan Fees: Is Anyone Safe?

Almost every employer that sponsors a retirement plan should be concerned about potential liability for a type of exposure known as excessive fee claims. Historically filed against only the largest organizations, an increasing number of smaller retirement plans have faced excessive fee litigation over the past couple of years. With this surge in litigation, it's important that all fiduciaries, regardless of plan size, understand the history and recent trends relating to excessive fee claims, the plan features that may make it a target of litigation, and steps fiduciaries can take that may reduce exposure to excessive fee claims.

Source: Chubb.com, May 2020

What's Driving the Fee Discussion Within the DC Market

Fee compression is also being driven by forces outside the market, specifically the rash of fee litigation and settlements that have forced plan sponsors and fiduciaries to consider lower-cost investment options. Complicating the question of asset management fees is the increasing pressure on recordkeepers to drive down administrative costs to plans, or potentially drive more suits.

Source: Schroders.com, May 2020

Pandemic Highlights Reasons for Reviewing Plan Fees

The events of the past few months have had a dramatic impact on nearly every business. Now, more than ever is a time to review expenses and cut back where possible. One possible area to explore cost savings is in your 401k or other related retirement savings plan. Plan sponsors might start here for a variety of reasons. Here are some insights.

Source: Plansponsor.com, May 2020

What Is the Best Way for Plan Sponsors to Pay Retirement Plan Fees?

Companies are becoming more open and willing to pay retirement plan servicing fees. This article focuses on Non-Settlor fees which typically include the following service providers: Third-Party administration services, investment advisory services, recordkeeping platform services, and employee benefit audit services. There are some compelling benefits for a company to pay these plan fees.

Source: Bpp401k.com, May 2020

A "Rosetta Stone" for Finding 401k Provider Fees

401k provider services and investments can vary dramatically in terms of breadth, depth, and price. Benchmarking 401k fees on an all-in basis helps normalize these differences, putting the onus on a 401k provider to justify higher fees. This article provides a 3-step process you can use to compare fees, including where to find the administration and investment fees for ten leading 401k providers. In short, a "Rosetta Stone" for finding 401k fees.

Source: Employeefiduciary.com, April 2020

401k Plan Participants Say Fiduciaries Ignored Excessive Fees

In a lawsuit targeting the Pharmaceutical Product Development Retirement Savings Plan, the plaintiffs allege that fiduciaries of the plan violated their duties under ERISA. They say the plan fiduciaries failed to objectively and adequately review the plan's investment portfolio to ensure each investment option was prudent in terms of cost and maintained certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.

Source: Planadviser.com, April 2020

Liberty Mutual Sued Over Its 401k

Liberty Mutual is facing a class-action lawsuit brought by its 401k participants, who allege the plan's recordkeeping fees were out of control and the insurance giant allegedly violated ERISA by failing to rein them in.

Source: Investmentnews.com (registration may be required), April 2020

Why 401k Fees Are a Mystery

Despite fee-disclosure requirements passed a decade ago, it's not easy for participants to figure out how much they're being charged.

Source: Investmentnews.com (registration may be required), April 2020

Court Finds Fault With Fiduciary Fee Review

A federal judge has found that a provider breached its fiduciary duty of overseeing its own 401k by failing to monitor proprietary funds and its recordkeeping expenses, though it was not obligated to consider options other than mutual funds.

Source: Asppa.org, April 2020

The Math Behind Plan Fee Evaluations

Plan sponsors have heard -- and many excessive fee lawsuits state --that larger defined contribution plans, in terms of assets, pay lower fees. But do they? Determining whether fees are reasonable for participants requires an additional layer of calculation, and some fee elements and allocations make it more complicated than it should be.

Source: Plansponsor.com, April 2020

Fees for Large and Small 401k Plans Continue to Fall

More good news about fees and fee compression as plan sponsors and participants increasingly realize the long-term implications they can have on retirement. Both large and small plans saw cheaper prices for investment and administration, regardless of the situation and scenario.

Source: 401kspecialistmag.com, February 2020

Recordkeeping Fees Under the Microscope

Today, the landscape is rapidly shifting, and it definitely seems to be the case that per-participant recordkeeping fees are becoming the expected best practice, no matter what size the plan. Plaintiffs' attorneys and progressive plan sponsors are driving this trend. Their argument is simply that, with today's digital recordkeeping technology, it is no more work for the plan provider to administer an account with $1,000,000 versus an account with $100. Thus, the argument goes, it is not reasonable under ERISA for the fee to grow while the service being provided remains the same.

Source: Planadviser.com, November 2019

Five Key Points on 401k Plan Fees From ICI Research

Thanks to innovation and a competitive market, 401k mutual fund fees keep falling. ICI has a window into this information through our study of the cost of providing 401ks, in which they take a close look at the expenses and fees of mutual funds incurred by 401k plan investors, and in related research on fund fees through a collaborative research effort between ICI and BrightScope.

Source: Ici.org, October 2019

401k Fiduciary Responsibility and Mutual Fund Fees

Fiduciaries often are aware of administrative and disclosure requirements, but sometimes become negligent when choosing funds with reasonable fees. Even those who are aware can inadvertently fail to select the best mutual fund. While 401k fees have decreased in recent years because of litigation and various DOL regulations, mutual funds can still charge indirect fees that DOL would deem unreasonable. Unfortunately, fiduciaries with little knowledge regarding fee structures may authorize a plan to charge fees, decreasing participant balances.

Source: Forbes.com, September 2019

Vendor Fees: The Importance of RFPs

Investment advisor and recordkeeper searches are a very important aspect of the fiduciary duty of "procedural prudence," i.e., setting up and carrying out prudent processes that are intended to render beneficial results for participants. They provide 401k and 403b plan fiduciaries the opportunity to ensure not only that fees are reasonable, but also that the appropriate services, technology and education are being provided to the plan participants.

Source: Sgrlaw.com, August 2019

The Correct Approach for Controlling Retirement Plan Fees

When employees file complaints against their employers with the U.S. Department of Labor, fees for their retirement plan services is a very common reason. A burgeoning era of employee activism is underway in which plaintiff lawyers are finding fertile ground for litigation opportunities, catching many employers unprepared. Many other employers are ready, however, using an approach that offers a legally defensible result.

Source: Rolandcriss.com, August 2019


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