Retirement plan fee litigation has led plan sponsors and providers to rethink service and investment fees for retirement plans and their participants.
Fee-levelization, an approach where administrative fees are divided equally among enrolled plan participants, is no exception to newly trending strategies. A panel at the 2018 PLANSPONSOR National Conference (PSNC) elucidated the gist of fee-levelization, flat fees, zero-revenue sharing, and all other retirement plan fees considered.
Michael Volo, senior partner at Cammack, explained there are two paths to breaking down fee-levelization: per capita and on a basis point fee. Per capita fees, he said, have been stigmatized by plan sponsors in the past, as many believe they are not the fairest way to charge participants. “Fee leveling is simply every participant paying their share. It’s a very transparent approach,” he said. “Even with some plan sponsors, it’s pushing a rock up to hill to convince them.”
Among the fee requirements under the Employee Retirement Income Security Act (ERISA) is ensuring participants pay reasonable fees, a requirement especially notable given the series of fiduciary liability lawsuits that have sprung in past years. To combat litigation, Volo suggested providers inform and alert plan sponsors about fees. “Almost all fiduciary lawsuits have to do with fees,” he said. “With all of our clients, we’ve spent the past two years educating them on fees.”
Scott Everhart, president of Everhart Advisors, connected the largest aspect of fee-levelization to revenue sharing. With investment lineups, he said, institutional classes with zero revenue sharing are favored.
The idea of disclosing fees to participants was reviewed as well. In the past, fee explanation has proven difficult for participants, as its overpowering data can scare employees off, especially those learning the material alone. Instead, Volo recommended plan sponsors, advisers and recordkeepers should implement a Q&A. Utilizing a questions and answers forum, or a FAQ, can consolidate material and ease the learning path for participants.
“What I’ve seen in success is, having a Q&A is important. We try to take the best of the best, so then we have all the resources mitigate questions and then if they come, you have the best resources,” he said.
Another way to educate participants, Everhart said, is to encourage participant meetings and communications with the plan’s providers. This, in turn, can increase participation, knowledge and engagement with the plan. “We want our provider, or our provider’s team, to be out with participants,” he said.