Should a Retirement Plan Implement a Fee Policy Statement?

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.

By |2017-09-06T21:33:51+00:00August 3rd, 2017|Uncategorized|0 Comments

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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