Take Advantage of Fee Disclosures


For plan sponsors, now is the time to take advantage of the fast-approaching world of fee disclosures. Whether you use a broker, consultant or go direct, the soon-to-be-implemented 408(b)(2) fee disclosures provide a real opportunity to get a handle on plan costs as well as to implement several best practices when it comes to fees. Here’s a step-by-step overview of the process I recommend:

  1. Ask the recordkeeper what it needs to recordkeep the plan. Also ask how much the current investment options generate in terms of “revenue share.”
  2. If the current investments are generating more in revenue sharing than is required by the recordkeeper, ask where the “excess” revenue is going.
  3. If you haven’t already done so, the next step is to establish an account where these excess monies are tracked until they are either redistributed back to participants as a “dividend ” or used by the plan sponsor to pay for “ERISA-eligible” expenses.
  4. Once you know the recordkeeper’s cost structure, the next step is to determine if the fee structure is “reasonable.” When negotiating the recordkeeper’s fees, follow these general rules:
      • Make sure to have some comparative date to place fees into a broader context. If you don’t have the time or skill to conduct your own fee benchmarking survey, then consult the 401(k) Plan Averages Book.
      • Ask your recordkeeper to price your plan using not only the de facto industry-standard “asset-based fee model” but also a flat, per participant fee structure.
      • Ask your recordkeeper if they can or implement a “levelized” pricing structure. Although this approach where everyone pays his/her proportionate share of the recordkeeping costs is fairer than today’s current pricing paradigm where some participants subsidize the recordkeeping costs of other participants based on what funds they invest in and to what degree their funds share revenue.