Negotiate a fixed-rate recordkeeping fee based on the number of participants with account balances in the plan. This approach provides fee transparency and affords fiduciaries a sound basis for documenting the “reasonableness” of recordkeeping fees, rather than relying on a pricing model that is dependent on the value of plan assets.

We believe a prudent fiduciary should evaluate and monitor investment fees and recordkeeping fees separately. If the recordkeeper offers proprietary asset management, the plan sponsor should negotiate for more favorable recordkeeping fees in case the recordkeeper’s funds underperform and are removed from the plan’s lineup.

Plan sponsors can mitigate fiduciary risk by selecting the lowest expense ratio and/or lowest net cost vehicle for each investment option, regardless of revenue sharing. Alternatives to mutual funds, such as collective investment trusts and separately managed accounts, are increasingly available and should be considered if they offer lower overall fees. To potentially minimize investment costs, plan sponsors must proactively monitor fees as plan assets grow and markets evolve, as investment managers often do not inform clients about new or lower-cost investment vehicles.

Furthermore, for employers with multiple plans offering the same funds, investment managers often aggregate assets to assess if the plans are eligible for lower-cost investment vehicles. To help ensure this takes place, communication from the plan sponsor or service provider is often required.

DC plan fees vary based on each plan’s complexity, size, and required level of services. Conducting a fee benchmarking study every three years with market data specific to your plan’s service requirements helps fiduciaries document that the plan’s fees are market competitive or identify the need for action (e.g., negotiations with current recordkeeper or conducting a vendor search). High-level fee comparisons to the fees of other plans based on publicly available data or surveys does not provide a fiduciary safe harbor in terms of monitoring.

The contract should clearly define vendor responsibilities and hold them fully responsible for breaches due to negligence. Service standards should be meaningful, measurable and directly tied to the plan sponsor’s needs, with fees at risk for non-compliance. For example, vendors could be held accountable for the improvement of a plan’s aggregate retirement readiness.

Additionally, given the rising risk of cyberattacks and the Department of Labor’s Cybersecurity Program Best Practices, vendor contracts should be updated regularly to address current data security policies and breach exposures.

Provider disclosure requirements under ERISA Section 408(b)(2) are designed to ensure that sponsors are aware of their fee arrangements. It is incumbent upon the sponsor to ensure that actual charges align with contractual provisions and disclosures.

An annual review of opportunities to reduce the overall cost of administration often leads to fee reductions. Areas to consider include:

•  Administrative processes that are inefficient or outdated.
• Underutilized services or plan provisions that can be eliminated.
• Plan provisions that can be simplified or streamlined.
• Participant notices and documents that can be delivered electronically to reduce mailing costs as well as the environmental impact.
• Internal processes that could be outsourced.
• Internal controls to help reduce errors.
• Strategies to promote automation and self-service among participants.
• Consolidation of legacy plan accounts to reduce plan complexity.
• Elimination of legacy communication campaigns that have no discernible impact on participation, asset allocation, or retirement readiness.

Request information about revenues that the recordkeeper may receive from third parties because of participants utilizing certain services.

For example, if a plan offers investment advice or managed account services to its participants, is the revenue generated from this program disclosed to the plan sponsor and treated in accordance with the vendor contract?

Additionally, as recordkeepers increasingly partner with third parties to offer financial wellness solutions to plan participants, the third parties should fully disclose their fees and any revenue sharing arrangements with the recordkeeper.