COLLECTED WISDOM™ on Revenue Sharing Within 401k Plans
It is imperative that plan sponsors with fiduciary oversight of their organization's 401k retirement plan understand the distribution systems that most investment management organizations use and how they share revenue, revenue that is an assets of the 401k plan.
Here is information to help you understand the issue of revenue sharing.
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.
Abstract: Given the 12b-1 fee's implicit conflicts -- and their declining relevance -- arguably it's time to create a more appropriate pricing structure for the realities of today's investment marketplace.
Source: Kitces.com, March 2017
Abstract: While popular for many reasons, 'revenue sharing' arrangements have been a magnet for class action litigation, and teachings from recent cases (and the accompanying sizable settlements), suggest that employers should review their 401k plans to stay out of the litigation "line of fire." This article analyzes two recent cases where plaintiffs challenged revenue sharing arrangements under ERISA and also provides recommendations for employer to reduce the risk of costly litigation involving revenue sharing arrangements.
Source: Weil.com, December 2016
Abstract: Managed accounts within DC plans continue to be targeted by class action law firms with the latest filed by Schneider Wallace on behalf of three participants in the $14 billion Ford Motor Company plan against their recordkeeper Xerox HR Solutions.
Source: 401ktv.com, November 2016
Abstract: ERISA does not prohibit retirement plan revenue sharing or even the retention of revenue sharing payments by retirement plan service providers. So, what's the concern? What do 401k plan fiduciaries need to know about revenue sharing? Here are some answers.
Source: Klgates.com, November 2016
Abstract: Plan sponsors have a fiduciary duty to make sure the fees on their 401k plans are reasonable, including any 12b-1 fees. We are also seeing more intense scrutiny of 12b-1 fees by the SEC. Paper reviews a number of topics related to this issue including the fiduciary liability risks assumed by plan sponsors who use funds with 12b-1 fees.
Source: Fiduciarynews.com, July 2016
Abstract: In this one-page article, Fred Reish discussed how excess recaptured service provider's compensation is handled, and how to allocate plan expenses. The articles also highlights the creation of recordkeeping systems that "equalize."
Source: Drinkerbiddle.com, June 2016
Abstract: This article summarizes the evolution of revenue sharing over the past ten years and examines its future through the lens of the recent U.S. Supreme Court decision in Tibble v. Edison and the subsequent uptick in 401k fee litigation.
Source: Mwe.com, March 2016
Abstract: Many benefit brokers, CPAs and even attorneys also receive referral fees, with some "accommodating" BDs set up just to help these unlicensed professionals get paid. Fred Barstein looks at whether these fees survive greater disclosure and the pending DOL fiduciary rule.
Source: Napa-net.org, March 2016
Abstract: An answer to the question, "I am a fiduciary investment adviser to ERISA plans and receive an advisory fee for my services. I also own a company that provides recordkeeping services to ERISA plans. May I recommend mutual fund investments to those plans that pay revenue sharing to my recordkeeper company?"
Source: Planadviser.com, March 2016
Abstract: Add Great West under their Empower Retirement brand name as the latest bundled provider being sued. Great West is being sued for revenue sharing fees from mutual funds as part of their program.
Source: Jdsupra.com, January 2016
Abstract: Transparency should be a major factor in complying with the intent of ERISA and proposed DOL regulations. If revenue sharing is eliminated and providers charge companies or participants for recordkeeping services as a line item expense, transparency is inherent and participants can be treated more fairly.
Source: Linkedin.com, October 2015
Abstract: This article discusses the duty to monitor non-fiduciary service providers. It focuses on two aspects of plan service provider arrangements that can make the monitoring process especially challenging: fees and revenue sharing arrangements.
Source: Octoberthree.com, September 2015
Abstract: Plan fiduciaries need to understand the amounts of payments that are being made from funds they select, who's paying them and who is receiving them. Some believe the unanimous decision just handed down by the Supreme Court in Tibble v. Edison could impact mutual fund selection by delivering a broadside to two mainstays of advisory cash flow: 12(b)-1 fees and revenue sharing.
Source: Riabiz.com, May 2015
Abstract: The DOL and 408(b)(2) treat revenue sharing payments as compensation to recordkeepers. If the total compensation from revenue sharing exceeds the reasonable cost of recordkeeping services, the plan sponsor has a fiduciary obligation to be aware of that and to recoup the excess compensation for the benefit of the participants. Reish reviews the issues.
Source: Fredreish.com, April 2015
Abstract: The SEC is going after 12b-1 fees. The DOL is questioning revenue sharing. Jerry Schlichter and other class action attorneys are winning cases against plan sponsors on these payments. Could it be, after years of warnings, we are finally about to witness the fall of the house of 12b-1?
Source: Fiduciarynews.com, March 2015
ERISA Revenue Sharing Arrangements: Avoiding Plan Asset Status, Complying With Due Diligence Requirements
Abstract: PowerPoint slides from presentation on ERISA Revenue Sharing Arrangements. Topics include: Brief Overview of Revenue Sharing Arrangements, When are Revenue Sharing Payments "Plan Assets," and Considerations for Revenue Sharing Payments that Constitute "Plan Assets."
Source: Wagnerlawgroup.com, March 2015
Abstract: The Supreme Court is slated to hear the Tibble v. Edison case in 2015, which promises to be a landmark ruling for the corporate retirement space. According to Brian Menickella, managing partner at The Beacon Group, "This case should serve as a wakeup call to plan sponsors. To fulfill their responsibilities and avoid penalties, employers need to make sure they are compliant."
Source: Benefitnews.com, December 2014
Abstract: New disclosure rules and the threat of fiduciary violation lawsuits have helped bring down investment management, recordkeeping and other fees in 401k and other retirement accounts. Now revenue-sharing is following suit. About 13% of plans had no form of revenue sharing whatsoever last year, a figure that most expect will grow.
Source: Thinkadvisor.com, July 2014
Abstract: Reports indicate revenue sharing has been declining over the last few years, both in terms of the percentage of plans including it and as a portion of the expense ratio. Fee disclosure requirements have likely played at least some part in this trend, but market forces have been more influential in reducing the incidence of revenue sharing.
Source: Employeefiduciary.com, July 2014
Abstract: Revenue sharing with 401k service providers has been common practice for many years. It may sound like your service provider is offering "free money" when it offers to share part of its revenue sharing payments. But do not jump on the offer without taking the time to satisfy your fiduciary duties, which requires a careful consideration of how the arrangement works, the service provider's role, and the reasonableness of the service provider's compensation.
Source: Mckennalong.com, July 2014
Abstract: While revenue sharing may be a legitimate way to pay for the costs of operating a plan, both US courts and the DOL have made it clear that plan sponsors have a significant responsibility as fiduciaries to fully understand, evaluate and monitor their revenue-sharing arrangements and determine whether they are reasonable. Therefore, the most prudent response for plan sponsors may be to rethink the practice of revenue sharing altogether.
Source: Alliancebernstein.com, June 2014
Abstract: As plans mature and become larger, the problem of excess revenue sharing enters the picture. That's when the revenue sharing coming from fund providers exceeds the amount necessary to pay for the plan's expenses. And plan fiduciaries have to decide what to do with the excess revenue-sharing amounts -- how the plan will use that money.
Source: Alliancebernstein.com, June 2014
Abstract: In Advisory Opinion 2013-03A, the DOL was saying that it has not issued any guidance, and was not prepared to issue guidance, concerning the allocation of revenue sharing. That is a reminder that there isn't any explicit guidance on how to allocate revenue sharing. As a result, fiduciaries need to engage in a prudent process to make that decision.
Source: Fredreish.com, May 2014
Abstract: Revenue sharing has become a hot issue. That includes the selection of mutual funds that pay revenue sharing, its use for paying plan expenses, and the allocation of revenue sharing to participants. The focus on those issues is largely due to class action lawsuits against large plans and the insistence of the DOL on revenue sharing disclosure. This article discusses the legal issues and alternatives for allocating revenue sharing in participant-directed plans.
Source: Napa-Net.org, April 2014
For more information on plan fees and costs, go to our COLLECTED WISDOM™ on Plan Fees and Expenses.
To find more information fiduciary liability, go to our COLLECTED WISDOM™ on Fiduciary Responsibility and Liability Issues.
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