Compliance July 8, 2007

Plan Fee Lawsuits to Bring Change

Although plan fees might not be excessive, advisers and plan sponsors should consider whether they can be less.

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So said Jennifer Marconi Flodin, COO of Plan Sponsor Advisors, speaking at PLANSPONSOR’s Plan Designs conference; the question isn’t necessarily whether the fees are too high, but whether the sponsor could have been paying less, she said.

“The spotlight more than ever before is on the plan sponsor and investment adviser,’ Nancy Ross, an attorney with the firm McDermott, Will & Emery, told the audience. In light of the spate of lawsuits filed by the firm of Schlichter, Bogard & Denton challenging fees in 401(k) plans, as well as the recent attention to fees in Washington in Congress and the Department of Labor, “more than ever before, you guys are under the spotlight,’ Ross commented.

It is not only about how much was paid in fees on a particular plan, but rather whether the plan tried to lower their expenses. In fact, according to Jeb Graham of CAPTRUST Advisors, “The fees really aren’t that high.’ Instead, he said, ’the issue is going to shift to where the issue is not the fees but that the oversight is lax.’

Moving forward, Thomas Pittman, Chief Marketing Officer, The Newport Group, changes will be seen across all fronts: plan sponsor, provider, and adviser. These cases have blown the fee discussion seriously out of proportion. Regulatory bodies are putting themselves into a position to make new discussions about disclosure, and even before that, an increases awareness is being seen, in things such as requests for proposals (RFP), which Pittman said now routinely ask about issues such as revenue sharing arrangements.

Ross, whose firm represents one of the firms sued by the Schlichter firm, said the lawsuits are focusing on revenue sharing, a focus that can be unsettling, because there is nothing inherently illeagal about revenue sharing. However, she said the lawsuits and increased attention in Washington have led plan sponsors to ensure plan fees are properly understood. Ross said that her firm has seen a significant increase in the number of companies looking for McDermott, Will & Emery to help with a plan fee audit.

Flodin agreed that sponsors should ask questions of plan providers, saying that advisers should get their clients to insist that providers acknowledge all direct and indirect revenue streams involved with the sponsor’s plan, she said.