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Confirming 401(k) Expenses are Reasonable

As you know, fiduciary responsibility under ERISA is very important to 401(k) plan sponsors. Fiduciaries have significant responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. Ensuring that disclosures are adequate and that plan fees and expenses are reasonable are two aspects of these responsibilities.

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Confirming 401(k) Expenses are Reasonable


As you know, fiduciary responsibility under ERISA is very important to 401(k) plan sponsors. Fiduciaries have significant responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. Confirming that fee disclosures are adequate and that plan fees and expenses are reasonable are two aspects of these responsibilities.

I’m Bonnie Fawcett, Senior Vice President and Managing Director of the Vested Interest® Defined Contribution Program at PNC Bank.

As you’re aware, two sets of U.S. Department of Labor fee disclosure regulations went into effect in 2012 to help ensure that retirement plan sponsors and plan participants have adequate information to evaluate the value of services received for the fees paid.

As part of the Department of Labor’s 408(b)(2) regulation, you will need to verify that you have received fee disclosures from all plan covered service providers.

The 404(a)(5) regulations require plan administrators to disclose certain plan- and fee-related information to plan participants. You must also confirm that disclosures are adequate under new rules and that fees paid are reasonable based on the investment options and services being provided.

Your fee disclosure review presents an opportunity for you to take a good look at your current program to make sure it’s meeting objectives — those you’ve established for your 401(k) plan, as well those of your participants. Cost is important, but it’s only one of the criteria you need to evaluate. You need to assess the quality and type of services provided, as well as compare investment products and options on the basis of expenses and investment performance.

Once you’ve evaluated these aspects of your plan, you need some way to compare your plan and expenses with those of your peers. (Pause, change in thought) Your retirement plan provider, along with your ERISA counsel, can be helpful.

Benchmarking against comparable organizations’ plans is often the most costeffective and least disruptive method to determine whether fees are reasonable.

It involves comparing your plan to a group of organizations that resemble your own. A thorough benchmarking process will balance fee components and value components – a comprehensive approach that provides the context needed to truly assess the reasonableness of a plan’s fees. A thorough, objective benchmarking process should determine:

• How your plan costs compare with those of your peers

• Whether your plan costs are reasonable based on the level of service

• If the plan offers participants a diversified choice of investments

• Whether the plan is performing as designed

The results of the benchmarking process should help you determine if you need to update any component of your plan, and just as important, could improve your plan’s success.

For more information about benchmarking value and fees, or other aspects ofretirement plan administration and compliance, please contact me using theinformation on the next screen.

Thank you for your time and attention.

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