The 403(b) community has become the target of retirement plan fee litigation. Lawsuits have been filed against Duke, Johns Hopkins, MIT, NYU, UPenn, Vanderbilt, and Yale on behalf of plan participants. The complaints allege that the plan sponsors failed to monitor excessive fees, did not replace expensive, poor-performing funds with cheaper ones, and generally failed to provide appropriate fiduciary oversight in the administration of their retirement plans. These complaints allege that these failures cost tens of millions of dollars in retirement funds. While 401(k) plan sponsors are more than familiar with these types of claims, this is the first time that nonprofit organizations have been targeted. Read more about the recent lawsuits here and here.
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. As a plan sponsor, you should:
- Understand the fees and expenses your plan participants are paying, directly and indirectly
- Benchmark fees and investment returns
- Evaluate the number of investments offered – you may find you are offering several investments with similar characteristics
- Evaluate lower cost fund class alternatives
- Monitor your service provider – review performance and fees charged, evaluate ways to reduce fees such as bundling services
- Establish a Plan Oversight Committee and meet on a regular basis
Now is the time to start this conversation and implement changes as needed.
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