Best practices for 401(k) fees: 10 steps to reduce risk and increase the value of your plan.

AuthorGriggs, Gene
Position2015 Law Journal

The recent implementation of the Department of Labors three-part fee-disclosure regime not only accelerated the evolving 401(k) retirement-plan fee-litigation phenomenon, it also has increased transparency in the plan provider marketplace. As a result, retirement plan fiduciaries and participants are developing a better understanding of the fee structures and practices of plan service and investment providers. Another result of this greater transparency, perhaps not surprisingly, is a more competitive marketplace marked by falling fees.

These changes present employer-fiduciaries of 401 (k) plans with new responsibilities and an opportunity to reevaluate and realign their practices to better meet these responsibilities. The decision-making process of a fiduciary has always been important, and recent court decisions levying huge monetary judgments against employer-fiduciaries emphasize the importance of meeting these responsibilities in a deliberate and prudent manner. Here are 10 steps designed to assist employer-fiduciaries in meeting their fee-related responsibilities, reducing the risk of fiduciary liability and increasing the value of the employer s 401 (k) plan to participants.

  1. Identify plan fiduciaries. Identify all plan fiduciaries, including those responsible for evaluating the reasonableness of fees and accuracy of fee-disclosure documents. Be sure they have accepted their fiduciary responsibility in writing and have the proper education and support to perform their duties. Fiduciaries must be familiar with the content and timing requirements of the fee-evaluation and disclosure rules.

  2. Select and monitor plan fiduciaries to avoid conflicts of interest. Choose fiduciaries and design a fee-evaluation process to avoid conflicts of interest. Once in place, fiduciaries must identify conflicts of interest, self-dealing or other improper influences, and eliminate these issues. When appropriate, the fiduciary should be removed or recused from participating in decisions relating to the conflict. The employer's governing body (usually a board of directors or similar entity) must monitor fiduciaries to ensure they are performing their duties appropriately.

  3. Establish a process to periodically evaluate fees and fee disclosures. Obtain sufficient information from service and investment providers to determine whether the direct and indirect compensation they receive is reasonable. This requires an engaged and objective process designed to...

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