F AQ: FEE REASONABLENESS 1What standard applies when determining whether retirement plan fees are appropriate?Under the Em...
Should a plan sponsor always offer the lowest cost available share class mutual funds?Mutual funds are often offered in a ...
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FAQ: Fee Reasonableness

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FAQ: Fee Reasonableness

  1. 1. F AQ: FEE REASONABLENESS 1What standard applies when determining whether retirement plan fees are appropriate?Under the Employee Retirement Income Security Act of 1974 (ERISA), retirement plan fiduciaries mustensure that fees paid from the plan are reasonable in light of the services being rendered. Attaining feereasonableness does not require choosing the service provider with the lowest fee service proposal.How can a plan fiduciary prove the reasonableness of plan fees?While the recipe for meeting the reasonableness standard is not expressly finite, demonstrating certainhighly encouraged best practices has been known to satisfy Department of Labor inquiries on thetopic. • Plan sponsors should dissect and thoroughly understand the fees paid from plan assets. • A fee policy statement exhaustively listing plan fees and describing how they are paid is highly useful. • Plan sponsors should be able to confidently assert that they have thoroughly reviewed annual fee disclosures from vendors receiving a certain level or type of compensation paid from plan assets. • Conducting an annual recordkeeping fee benchmarking study allows for meaningful comparison of current plan fees to a range of fees that would be expected if the plan’s recordkeeping services contract went out to bid in the marketplace. Apparent opportunities to negotiate fees downward should be taken. • A recordkeeping vendor request for proposal process every 5 years or so can also help satisfy the reasonableness standard, as well as a related fiduciary duty to monitor all plan services providers.1 Information contained herein is provided “as is” for general informational purposes only and is not intended to becompletely comprehensive regarding the particular subject matter. While Multnomah Group takes pride in providingaccurate and up to date information, we do not represent, guarantee, or provide any warranties (express or implied)regarding the completeness, accuracy, or currency of information or its suitability for any particular purpose. Receipt ofinformation herein does not create an adviser-client relationship between Multnomah Group and you, and we have notassessed the suitability or potential value of any particular investment. Neither Multnomah Group nor any of our advisoryaffiliates provide tax or legal advice or opinions. You should consult with your own tax or legal adviser for advice aboutyour specific situation.
  2. 2. Should a plan sponsor always offer the lowest cost available share class mutual funds?Mutual funds are often offered in a hierarchy of share classes assigned according to factors such asamount of assets invested in the fund. Sometimes, investing higher dollar amounts in a fund allows forlower cost share class qualification. Plan fiduciaries must consider elements such as overall plan costand available revenue sharing before determining the appropriate share class. What is most importantfor plan fiduciaries here and with regard to fee reasonableness determinations generally is the ability todemonstrate a prudent (i.e. disciplined and diligent) process under which the issue was evaluated.Multnomah Group, Inc.Phone: (888) 559-0159Fax: (800) 997-3010www.multnomahgroup.com

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