Experiential Wealth

Whack-A-Mole: Fiduciary Considerations in Plan Fees

Mar 5, 2014 | Opinions, Plan Sponsors, Regulations

Using revenue generated from investment vehicles to offset retirement expenses is a fiduciary decision, and far too many plan sponsors are not aware of the decision being made on their behalf.  Unsuspecting plan sponsors believe that their retirement plan is “free” while all along the plan is paying all expenses through the use of revenue paying investment vehicles.

Revenue sharing payments are typically generated by mutual funds, and this asset fees payment can be used to offset all eligible plan expenses.  Our paper discusses sources, types and applications of such payments and how decisions should be considered.  Revenue sharing payments have fiduciary ramifications of a) requiring fiduciaries to control plan expenses, b) making sure that plan expenses are reasonable, and c) examining alternative ways of paying for the plan expenses in the best interest of the participants.  Our paper also speaks about the fairness of shouldering plan expenses by each participant and if such expenses should be assessed on a per capita or pro rata basis.

Always remember, there is no free lunch and every decision a fiduciary makes must be prudent which means that decisions are reasoned and the decision makers are informed.  Many class action litigations have been and will be brought against plan fiduciaries for failing to make prudent decisions solely in the best interest of their participants.  This paper addressing plan administration and investment fees is only one of many decisions that a plan fiduciary needs to make, but the process of inquiry and discovery is the same.  And by the way, plan fiduciaries also have the duty to seek the advice of experts if needed to understand a situation and act on it accordingly.

Please click here to read the full paper.