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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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Retirement Plan Fees Worsen Enterprise Risk: A Management Briefing

A crisis among retirement plan-sponsoring enterprises is unfolding. The challenge facing their leaders is to ensure that operations managers are equipped with the training, guidelines, controls, and tools that elevate fiduciary risk management to its proper priority. Underestimating the economic and reputational risks related to deficiencies in the prudent management of ERISA plans threatens an entire enterprise.

Source: Rolandcriss.com, September 2023

Retirement Plan Fees: Are You Being Overcharged?

Under ERISA, plan fiduciaries are responsible for knowing the full extent of all expenses borne by their retirement plans and determining if they are reasonable. Conducting a benchmarking analysis of your plan's fees can help you understand these expenses and explore methods for reducing costs.

Source: Usicg.com, August 2023

Clarifying the Fee Rule

ERISA contains a provision that a contract or arrangement for employee benefit plan services and the fees for those services are reasonable, the so-called "Fee Rule." It is not well understood by retirement plan committees and is abused by some service providers to the detriment of their plan sponsor clients. Article contains five proven compliance action steps.

Source: Rolandcriss.com, May 2023

CITs and Lower-Cost Funds Drive Down 401k Plan Fees

Investment fees for 401k participants fell to .02% from .05% in 2021, according to a Baltimore-based research firm, with smaller plans incurring slightly higher fees than larger ones with more than 50 employees. The biggest driver for the decline was an uptick in 401k investments being put into lower-cost-fund share classes and collective investment trusts, which also tend to carry lower fees as pooled investment vehicles.

Source: Plansponsor.com, February 2023

401k Fees Decline Again in 2022

Fees for 401k plans declined again last year, with the investment costs paid by retirement plan participants down an average of 0.3%, according to the latest 401k Averages Book.

Source: Investmentnews.com, February 2023

401k Plan Fees Declining, But Small Plans Still Pay More

Investment-related fees paid by 401k plan participants continued to decline in 2022, according to the new release of the 401k Averages Book 23rd Edition. Total investment costs declined between 0.02%-0.05% from last year, with the average representing a decrease of 0.03%.

Source: 401kspecialistmag.com, February 2023

In ERISA Excessive Fee Cases, the Pendulum May Be Swinging Back in Favor of Plan Sponsors

The Oshkosh decision appears to create a favorable precedent for plan sponsors in the 7th Circuit since it narrowly applies the holding in Hughes. From the 6th and 7th Circuit, it appears that allegations have to compare the fees being charged with the quality and/or type of services being provided. Plan sponsors should review their investment lineup, compare investments under this standard, and maintain minutes of the deliberation process. Having a process-driven policy should mitigate fiduciary risk. Plan sponsors should also review their service agreements with their recordkeepers to fully understand how recordkeepers are compensated.

Source: Foxrothschild.com, September 2022

Study Finds Wide Range in 403b Plan Fees

A key finding of a recent GAO study is that fees for 403b plans varied widely. The agency surveyed ERISA and non-ERISA plan sponsors and service providers and reviewed the most recent Form 5500 data. It noted in its report that non-ERISA 403b plans are not required to file a Form 5500 with the Department of Labor, making it difficult to get information about this segment of the market.

Source: Plansponsor.com, April 2022

Plan Recordkeeping to Get More Expensive

If your retirement plan recordkeeper wasn't acquired within the past few years, don't be surprised if it happens in 2022. The frenzied M&A activity across corporate America has been particularly evident in the retirement plan recordkeeping industry, and industry observers predict continued consolidation in the years ahead. The reasons industry stalwarts have exited the recordkeeping business are many, but a primary contributor has been the intense fee compression seen by the industry over the past decade. The organizations that remain are desperately seeking alternative revenue sources, leaving plan sponsors with several new concerns.

Source: Francisinvco.com, March 2022

Whitepaper: Debunking Recordkeeping Fee Theories in Excessive Fee Cases

According to Euclid's whitepaper, "most large defined contribution retirement plans in this country have low recordkeeping fees – fees that are often five to ten times lower than the recordkeeping fees in most under $100 million small-asset plans." This new whitepaper, authored by Euclid's Managing Principal Daniel Aronowitz, reviews the common tactics used by plaintiff law firms to allege excessive plan administration fees.

Source: Euclidspecialty.com, March 2022

Here's How Much 401k Plan Fees Have Dropped

For both small and large retirement plans, average total plan costs for 401ks continued to decline in 2021, with plan investment fees leading the way, according to the latest edition of the 401k Averages Book. The 22nd edition of the book shows that all scenarios saw a year-over-year decrease in total investment costs ranging between 0.01%-0.06% from the previous year, with the average representing a decrease of 0.03%.

Source: Napa-net.org, February 2022

Understanding 408(b)(2) Disclosures

A Covered Service Provider must provide a 408(b)(2) disclosure to the retirement plan fiduciaries. This article describes what is in a 408(b)(2) disclosure, why is this disclosure necessary, and some 408(b)(2) best practices.

Source: Multnomahgroup.com, February 2022

The Northwestern Decision: A Win for Plaintiffs but a Possible Turn in the Tide?

While on its face, this decision might appear to be a win for the plaintiffs, the Supreme Court did not go nearly as far as plaintiffs had hoped. And the decision could ultimately signal a harder hill to climb for plaintiffs' claims in the world of 401k fee lawsuits. In the meantime, plan fiduciaries should take note of the court's opinion and consider ways to document a record on fees and expenses that is in line with the Court's decision.

Source: Groom.com, January 2022

Which Pocket? A Guide to Paying Retirement Plan Expenses Out of Plan Assets

The retirement plan sponsor may have the option to pay for some plan-related expenses out of the assets held in trust for the plan. This may seem like a more appealing option than paying for these expenses from business assets, but how does the sponsor determine which expenses are allowed to be paid from plan assets? This guide will explain which pocket you can use.

Source: Milliman.com, December 2021

Excessive Fee Lawsuits Without Excessive Fees: The Case of the $30 Recordkeeping Fee

If the recent case of Sigetich v. The Kroger Co., filed in the Western District of Ohio on November 5, 2021, is any indication, we have reached a turning point in which plaintiffs have started suing plans with really low fees. The complaint alleges that the Kroger 401k Plan had a $30 recordkeeping fee, which they claim is 50% too high, but in reality, is lower than nearly every plan in America today. The case shows how the Supreme Court needs to step in and halt the ability of the plaintiffs' bar to impose improper liability on the fiduciaries of America's retirement plans, absent legitimate proof of real fiduciary imprudence and harm to participants.

Source: Euclidspecialty.com, November 2021

2021 Best Practices Conference: Benchmarking Investments and Fees

During the final session of PLANSPONSOR's virtual 2021 Best Practices Conference, experts talked about the mechanics of benchmarking plan investments and fees, what to look for when benchmarking, and where to get help. Plan sponsors should consider two necessary elements when benchmarking investments. Meanwhile, whether fees need to be benchmarked depends on how they are paid.

Source: Plansponsor.com, November 2021

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

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