Like all other fiduciary actions, the value of a fee policy statement is a function of how well it is written and how consistently a plan sponsor describes or practices the process documented. For the client who may be concerned about fiduciary compliance, a fee policy statement can offer comfort. However, this statement can potentially create problems in addition to mitigating them.
Assuming the plan is being managed prudently, it should provide sufficient documentation to mitigate liability. Plans that fit this criterion go through a comprehensive live bid process every three to four years, or sooner if circumstances warrant. They also undergo an annual “second opinion,” which is a course of action based on national normative data (as seen in our annual fiduciary plan review process). In addition to these requirements, plan sponsors must respond appropriately to the conclusions and maintain documentation.
The recent attention given to plan fees is good in that, and if interpreted and reviewed properly, it will raise awareness to plan fees. On the other hand, it can also create a bias for action which may not be beneficial.
It is sufficient to state in the Investment Policy Statement (IPS) that the fiduciaries will take the necessary steps to ensure fees are reasonable. Furthermore, a written fee policy is not required and may not be necessary. A detailed fee policy can set fiduciaries up for failure and limit their flexibility in determining how fees will be structured. For the plan to work, fiduciaries should have a complete understanding of how much a plan is paying in total and to whom, and they should benchmark the plan periodically to ensure the fees are competitive.
If the investments are sharing revenue with the plan record-keeper, the fiduciaries should decide that these fees are appropriate and should understand who is receiving this revenue. All of this should be documented through reports and committee meeting minutes.
This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.
About the Author
Sikich
From accounting, tax and assurance to technology and advisory, Sikich offers a unique formula of professional services to businesses and organizations across the country. By pairing subject matter expertise with the real-world experience gained as entrepreneurial leaders, we provide clarity to your complex challenges and solutions to strengthen every dimension of your business.
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