Retirement Plan Review 408(B)(2) Fee Disclosure Requirements
What to do with disclosures?
To protect against potential fiduciary liability, plan sponsors should conduct a fiduciary review of all plan fees and investment expenses as soon as practicable. This exercise is intended to review the reasonableness of the cost and services that are provided. However, plan sponsors should not misinterpret this duty to mean selecting the cheapest investments or retirement administrator. The plan level fee disclosures are an ideal starting point for this type of review.
Effective July 1, 2012, the Employee Retirement Income Securities Act (ERISA) Section 408(b)(2) required retirement plan service providers, affiliates and subcontractors to disclose their compensation to plan sponsors. As part of a plan sponsorís general fiduciary responsibility, plan expenses and fees must be reviewed and reasonable. To conduct a prudent review, the plan sponsor or advisor should:
Gather information on each provider: Look for vendor qualifications; evaluate scope and quality of services; and compare fees and services.
Consider indirect compensation when evaluating investments and services: Plan fiduciaries should identify the providersí direct and indirect compensation payable by the planís investments or investment providers.
Solicit bids when selecting or reviewing providers: Collect pricing information; provide benchmarking; review historical performance; gather participant feedback; and provide multiple pricing options.
Evaluate fee information in relation to the services provided: Fee information alone should not direct the plan sponsorís decision. Fees should be evaluated based on the scope and quality of the services provided to determine if they are reasonable.
Conduct fiduciary reviews regularly with supporting documentation: Reviews should be performed at reasonable intervals (at a minimum annually).