Retirement Plan Fees Best Practices for Plan Sponsors ©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.
John Chavez, MBAJohn is a Regional Director for the Multnomah Group responsible for clientservice and business development...
Gina Gurgiolo, JD, LL.MGina Gurgiolo is a Senior Consultant for the Multnomah Group responsible forthe firm’s ERISA techni...
AgendaBuilding Foundation    Defining the Fee Universe    The Reasonableness StandardCompliance EnforcementRecent Trends  ...
Building FoundationThree important questions all plan sponsors should know how to answer:1. What fees apply under the plan...
The Fee UniverseAsset-based FeesCalculated as a percentage of all or a portion of plan assetsTypically assessed through th...
The Fee UniverseParticipant-based FeesCalculated based on the number of participants in or eligible for the planCould be a...
The Fee UniverseItemized FeesCalculated on a per-instance/as-incurred basis for a particular serviceTypically fixedMay be ...
The Reasonableness StandardWhat is “reasonable?”    Agreeable to sound judgment or logic    That which is appropriate for ...
The Reasonableness StandardRegulations under ERISA section 408(b)(2) require annual covered serviceprovider-to-employer di...
The Reasonableness StandardTussey, et al. v. ABB, Inc.    Federal district court in Missouri; appeal to Eighth Circuit Cou...
The Reasonableness StandardSummary timeline:1974:   ERISA is enacted, including section 408(b)(2)2007:   Proposed fee disc...
Compliance EnforcementThe DOL has the responsibility to enforce ERISA’s standards, includingensuring fee reasonablenessDOL...
Compliance EnforcementWhat will DOL request?1. Service provider information     Accountants, actuaries, administrators, at...
Compliance EnforcementWhat will DOL request?4. Fee assessment and payment documents     Invoices, cancelled checks5. Servi...
Recent TrendsHottest trend:    Unmistakable recent recordkeeping fee compression in the marketplace          Provides curr...
Roadmap to ReasonablenessBe able to answer our three foundational questions:1. What fees apply under the plan?      Revie...
Best Practices Checklist Maintain a Fee Policy Statement      List applicable fees under the Plan      State whether th...
Best Practices Checklist Request lowest-cost share class of investment options      Document the process and decision wh...
DisclosuresMultnomah Group, Inc. is an Oregon corporation and SEC registeredinvestment adviser.Any information and materia...
Upcoming SlideShare
Loading in …5
×

Retirement Plan Fees: Best Practices for Plan Sponsors

22,302 views
22,299 views

Published on

Under ERISA Section 408(b)(2), retirement plan fees must be reasonable in light of the services being rendered. Retirement plan fees are also a hot target in the courts, most notably with last year's Tussey vs. ABB, Inc. decision. In this presentation, we discuss just what the reasonableness standard means for today's retirement plan sponsors, and an action plan for employers.

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
22,302
On SlideShare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Retirement Plan Fees: Best Practices for Plan Sponsors

  1. 1. Retirement Plan Fees Best Practices for Plan Sponsors ©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.
  2. 2. John Chavez, MBAJohn is a Regional Director for the Multnomah Group responsible for clientservice and business development in Southern California. John works with awide array of organizations, including colleges and universities, non-profithospitals, and corporations. John consults with plan sponsors on fiduciarygovernance, plan design, vendor contract structure, vendor fees/services, andinvestment menu construction.Prior to joining Multnomah Group in 2011, John served as a Director ofConsultant Relations for the West Coast for a national retirement services firmspecializing in healthcare, research and higher education organizations. Priorto that, John was Vice President of Business Development and Assistant VicePresident of Client Services for several other retirement services firms.John is involved in the Los Angeles Chapter of the Western Pension & BenefitsCouncil and he is a member of the National Association of GovernmentalDefined Contribution Administrators. John holds a B.A. in Communications fromCalifornia State University at Fullerton and a MBA from University of La Verne.2 Retirement Plan Fees: Best Practices for Plan Sponsors
  3. 3. Gina Gurgiolo, JD, LL.MGina Gurgiolo is a Senior Consultant for the Multnomah Group responsible forthe firm’s ERISA technical and recordkeeping vendor search consultingservices. Gina consults with plan sponsors on plan design, fiduciarygovernance, and vendor fees/services.Prior to joining the Multnomah Group in 2010, Gina managed the productportfolio for a national retirement services firm and directed the firm’s planadministration unit serving its largest clients. Prior to that, Gina managed theretirement plan compliance and regulatory policy functions at another nationalretirement services firm. In all, Gina has over 13 years of holistic retirementplans experience.Gina earned her JD from the University of Pittsburgh and her LL.M in Taxationwith an emphasis in retirement plan and executive compensation law from theUniversity of Denver. Gina is a member of the Portland Chapter of the WesternPension & Benefits Council, and has been a conference speaker at multipleindustry events3 Retirement Plan Fees: Best Practices for Plan Sponsors
  4. 4. AgendaBuilding Foundation Defining the Fee Universe The Reasonableness StandardCompliance EnforcementRecent Trends Observations on Fee Compression Consequential ConsiderationsRoadmap to Reasonableness Fee Reasonableness “To-dos” Best Practices Checklist4 Retirement Plan Fees: Best Practices for Plan Sponsors
  5. 5. Building FoundationThree important questions all plan sponsors should know how to answer:1. What fees apply under the plan?2. How are the fees paid?3. Are the fees reasonable in light of services rendered?5 Retirement Plan Fees: Best Practices for Plan Sponsors
  6. 6. The Fee UniverseAsset-based FeesCalculated as a percentage of all or a portion of plan assetsTypically assessed through the investment product Types: Expense ratio (mutual funds, collective/commingled investments) Market value adjustment (stable value products) Variable (variable asset charge, mortality & expense, surrender) Wrap (administration, education/communications, custodial) Other (short-term trading/redemption, front-end, back-end, CDSC, put) Revenue sharing: Payment to selling agent/broker Can include commissions, 12-b-1/marketing, shareholder servicing, sub-transfer agency fees For services including recordkeeping/administration, education/communications, compliance testing/reporting6 Retirement Plan Fees: Best Practices for Plan Sponsors
  7. 7. The Fee UniverseParticipant-based FeesCalculated based on the number of participants in or eligible for the planCould be a base fee (example: $7,500 per year) or per-unit fee (example: $15per active participant and $25 per terminated participant)May be assessed to the plan sponsor or to plan assets/participants in additionto applicable asset-based fees Services covered: Education and communications Participant statements Participant website access Call center availability7 Retirement Plan Fees: Best Practices for Plan Sponsors
  8. 8. The Fee UniverseItemized FeesCalculated on a per-instance/as-incurred basis for a particular serviceTypically fixedMay be assessed to the plan sponsor or plan participants Examples: Contract implementation/termination fees Ad hoc/special services fees, such as 5500/compliance testing, plan mergers, customized plan documents/amendments Professional services, such as TPA, auditor, attorney, consultant, custodian/trustee Transactional services, such as loans, distributions, QDROs Optional participant services fees, such as brokerage window, managed accounts8 Retirement Plan Fees: Best Practices for Plan Sponsors
  9. 9. The Reasonableness StandardWhat is “reasonable?” Agreeable to sound judgment or logic That which is appropriate for a particular situation Not excessive relative to circumstancesUnder ERISA section 408(b)(2), retirement plan fees must be reasonable inlight of the services being renderedNo specific codified definition of what constitutes fee reasonableness per seDetermining reasonableness requires comparison of alternatives andevaluation of processes usedMust know and understand applicable fees to determine reasonablenessFollow prudent process that contemplates alternativesWhere can plan sponsors find comprehensive fee information?9 Retirement Plan Fees: Best Practices for Plan Sponsors
  10. 10. The Reasonableness StandardRegulations under ERISA section 408(b)(2) require annual covered serviceprovider-to-employer disclosure of feesIntended to empower plan sponsors to better comply with the feereasonableness standard under ERISA section 408(b)(2)First-year deadline was July 1, 2012Plan sponsors must terminate non-compliant covered service providers andhave a duty to inspect the notice for accuracy and follow up accordingly408(b)(2) notice information is needed to complete the plan’s Form 5500Schedule C10 Retirement Plan Fees: Best Practices for Plan Sponsors
  11. 11. The Reasonableness StandardTussey, et al. v. ABB, Inc. Federal district court in Missouri; appeal to Eighth Circuit Court of Appeals Case originated in 2006 from 15 separate complaints filed by ABB, Inc. employees Separate actions certified as a class in 2007 → first instance of a plan fee related class action suit Plaintiffs awarded $37M because: 401(k) plan fees subsidize corporate services benefiting executives A lower cost share class was available, but was not being used Policies/process not being followed Failure to pass excess investment revenue sharing back to the plan Reaffirmed fee reasonableness standards under ERISA section 408(b)(2) Similar litigation is looming At issue is whether the plan fiduciary used a prudent reasonableness evaluation process, had the right level of expert assistance, and/or documented the process steps11 Retirement Plan Fees: Best Practices for Plan Sponsors
  12. 12. The Reasonableness StandardSummary timeline:1974: ERISA is enacted, including section 408(b)(2)2007: Proposed fee disclosure regulations are issued2009: Revised 2009 Form 5500 Schedule C requests more fee information reporting than ever before2010-2012: Fee disclosure regulations are finalized and become effective; DOL investigation and enforcement activity increases2012: First retirement plan fee class action suit decided (Tussey, et al. v. ABB, Inc.); similar litigation looming2013: DOL announced intention to propose regulations clarifying 408(b)(2) notices; initial proposed version expected in May12 Retirement Plan Fees: Best Practices for Plan Sponsors
  13. 13. Compliance EnforcementThe DOL has the responsibility to enforce ERISA’s standards, includingensuring fee reasonablenessDOL investigation/enforcement activity is on the rise since 408(b)(2) regulationswere proposed and fee litigation trend beganHow are plans are selected for investigation? Randomly For cause/“red flag” 5500 reports late deferral remittance Independent auditor issues qualified report Participant complaintsUp to 6-year investigation periodPenalty is commensurate with harm caused13 Retirement Plan Fees: Best Practices for Plan Sponsors
  14. 14. Compliance EnforcementWhat will DOL request?1. Service provider information Accountants, actuaries, administrators, attorneys, brokers, consultants, contract administrators, insurance companies, investment advisors, investment managers, recordkeepers, TPAs, valuation appraisers2. Service agreements/contracts Describing services, duties, obligations, responsibilities, fee/compensation/commission schedule3. Service provider reports Investment performance reports, audit reports, actuarial reports14 Retirement Plan Fees: Best Practices for Plan Sponsors
  15. 15. Compliance EnforcementWhat will DOL request?4. Fee assessment and payment documents Invoices, cancelled checks5. Service provider selection documents RFP, proposals, comparative evaluation analysis, negotiation communications, assessment of fees relative to quality of service6. Investment documents Revenue sharing information, share class identification, stable value fund illiquidity/redemption or surrender fees Rebate information 12-b-1 fees, sub-transfer account fees, marketing/services fees, expense reimbursement account deposits15 Retirement Plan Fees: Best Practices for Plan Sponsors
  16. 16. Recent TrendsHottest trend: Unmistakable recent recordkeeping fee compression in the marketplace Provides current pricing renegotiation leverage Focus on value and watch for service descoping/unbundled pricing Expect heavier utilization of online service protocolsOn the rise: Fees-at-risk clauses in service agreements ERISA or other expense reimbursement accounts funded with excess revenue sharing dollars Service unbundling Levelized per-participant pricingMust be solved: Plans with multiple vendors receive 408(b)(2) disclosures in different formats, which have proven difficult to understand or consider collectively DOL will somehow address this in proposed regs expected May, 201316 Retirement Plan Fees: Best Practices for Plan Sponsors
  17. 17. Roadmap to ReasonablenessBe able to answer our three foundational questions:1. What fees apply under the plan?  Review service contracts, annuity contracts, fee agreements, investment fees  List all applicable fees in a Fee Policy Statement  Inspect vendor-to-sponsor fee disclosure notices and follow up as necessary2. How are the fees paid?  Find fee allocation provisions in agreements, contracts  Make decisions within plan sponsor discretion  Memorialize allocation information in Fee Policy Statement3. Are the fees reasonable in light of services rendered?  Compare your plan fees to the marketplace in some meaningful way  Renegotiate fees with vendors based on benchmarking/proposal results  Focus on value not the least expensive solution17 Retirement Plan Fees: Best Practices for Plan Sponsors
  18. 18. Best Practices Checklist Maintain a Fee Policy Statement  List applicable fees under the Plan  State whether the employer, forfeiture account, or participants pay the fees  State intent to ensure fee reasonableness Timely receive and review/analyze annual covered service provider-to- employer fee disclosure notice  Know your plan’s fees and understand how they work  Follow-up with questions as needed Benchmark recordkeeper’s fees to the market annually  Plan is not required to select the recordkeeper with the lowest fees  Fees must be reasonable in light of services rendered  Negotiate incumbent recordkeeper’s fees if they are higher than benchmarked range18 Retirement Plan Fees: Best Practices for Plan Sponsors
  19. 19. Best Practices Checklist Request lowest-cost share class of investment options  Document the process and decision whether to implement Issue request for bid or request for proposal to prequalified vendors every 5-6 years  Coincides with typical statutes of limitations  Document the process, evaluation criteria, resulting decisions and rationale Gather appropriate documentation in preparation for DOL investigation  Expect an audit and prepare/organize information to avoid scramble for documents (typically, 15-day response period allowed)  Provide information requested in the event of an investigation19 Retirement Plan Fees: Best Practices for Plan Sponsors
  20. 20. DisclosuresMultnomah Group, Inc. is an Oregon corporation and SEC registeredinvestment adviser.Any information and materials contained herein or on our website are providedfor general informational purposes only and are not intended to becomprehensive for any particular subject. Multnomah Group utilizes informationfrom third party sources believed to be reliable but not guaranteed, and as aresult, information is provided to you "as is." We do not represent, guarantee, orprovide any warranties (either express or implied) regarding the completeness,accuracy, or currency of information or its suitability for any particular purpose.Multnomah Group shall not be liable to you or any third party resulting from anyuse or misuse of information provided.Receipt of information or materials provided herein or on our website does notcreate an adviser-client relationship between Multnomah Group and you.Multnomah Group does not provide tax or legal advice or opinions. You shouldconsult with your own tax or legal adviser for advice about your specificsituation.20 Retirement Plan Fees: Best Practices for Plan Sponsors

×