Plan Fee Benchmarking — Key Fiduciary Considerations When Reviewing Plan Fees


Are the services your plan receives reasonably priced? Knowing the answer is a vital fiduciary duty. ERISA expects more from plan fiduciaries than simply shopping around for plan providers offering rock bottom rates. Rather, the question turns on whether fees are reasonable in light of services provided. So, in addition to knowing how much the plan is paying, you must determine whether the level of service rendered is appropriate.

Benchmarking in Three Steps
The benchmarking process itself — like all other substantive actions involving the plan — is subject to fiduciary standards. You’ll need to use an objective and systematic process. The following three steps will help you benchmark your providers:

  1. Request information from your plan providers. Information obtained when you originally chose the provider could be outdated. Request the latest general information available from your plan providers that describes their qualifications and all fees. Remember that any changes in plan fees are required to be disclosed to the plan in advance of the changes.
  2. Evaluate cost and performance data specific to your plan. Reread the fine print on your current service agreements, and reconcile it to services rendered. Are there any gaps? Look for them in routine services and in contingencies. For example, how much liability does your administrator assume for any errors? What are the provider’s backup capabilities in the event of some kind of disaster?
  3. Collect and assess comparative data. For ERISA compliance, it’s recommended that you send out requests for proposals to other vendors. However, if your plan is relatively small and your request form is long, you might find that not as many service providers will be willing to undergo the process as you would need to get enough data for a valid benchmark. That’s where professional benchmarking services enter the picture. They generally have data that can help make the comparisons.

Whether you hire a professional benchmarking service to manage the process depends on your own comfort level with doing a thorough job, and whether you have the time to do it. The decision of whether to outsource the benchmarking process shouldn’t be made lightly. ERISA’s “prudent man” standard applies in this situation: It’s not prudent to undertake a benchmarking process if you don’t have the expertise to do the job right.

Choosing a Benchmarking Service
If you opt to use an external benchmarking service, here are some questions to ask in the selection process:

  • What are the technical qualifications of the principals of the firm, and how long have they been in business?
  • How broad is the scope of the analysis — does it include all investment management as well as administrative service fees?
  • How much of the firm’s analysis focuses on individual fee components, as opposed to the overall fee structure by service category?
  • Does the firm obtain fee data directly from the service providers, or through a third-party data provider?
  • What quality control procedures are in place to ensure the data’s accuracy?

When you have completed the benchmarking process, you may find that your current service providers are the best option. In some cases, you might conclude that, although the fees you’re currently paying are competitive, they might not cover important services that another service provider includes in its standard service agreement.

Also, if you conclude that your current provider’s fees are lacking, that doesn’t necessarily mean you need to switch vendors. The benchmarking process opens the door to renegotiating your agreement with your current vendor.

Take the Time
Given recent publicity and litigation around this topic, and increased ERISA fee disclosure requirements, the probability that you’re dramatically overpaying plan fees is lower than it might have been in the past. Nevertheless, it’s generally recommended that you benchmark your fees every two or three years.

For more information on BPM’s Employee Benefit Plan services, please visit our website or contact Jenise Gaskin at (925) 296-1040.


Tips on Helping Pre-retirees Prepare for Retirement

A recent survey of retirees and workers approaching retirement has generated a set of recommendations for employers to help employees have a successful retirement. The Current State of Retirement report by the Transamerica Center for Retirement Studies gives several suggestions for ways employers can help current plan participants ease into retirement.

The report encourages employers to allow workers to phase in to retirement with flexible work arrangements and reduced hours. Another idea is for employers to extend retirement plan eligibility to part-time workers. In addition, offer pre-retirees access to financial counseling that includes retirement income strategies. Explain the need for a backup plan if the employee is forced into retirement sooner than expected.

Employees find it helpful when employers provide education about Medicare and Social Security claiming strategies to help them make informed decisions about when and how to apply to maximize the value of their benefits. Finally, encourage pre-retirees to participate in the selection, training and mentoring of the employee or employees who will assume their responsibilities when they retire.