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Understanding Investment Expenses and Fees Part 10

Brendan P. Speers, AIF®, CPFA | October 23, 2020

Fiduciary duties include ensuring the fees and expenses paid from plan assets are reasonable. Here are some tips to know as it relates to understanding investment expenses and fees.

1. It’s important for plan sponsors to remember – it is not your money.

If it is, if it’s the company paying all the expenses, that’s a different story. But the reason that these regulations are in place is because the company has the fiduciary responsibility to take the participants’ money and spend it wisely when you’re shopping for different providers for different funds, and for different services. It’s the participants’ money that you’re spending in most cases in order to provide this benefit.

2. You don’t have to have the cheapest plan, but the costs do have to be reasonable.

To do this, you must understand what “reasonable” means and you must understand and be able to justify the investment expenses that are being charged (all expenses actually).

Benchmark your plan’s expenses at least every three years. For any expense that’s paid out of plan assets – you should have written documentation that demonstrates you’ve evaluated similar options and determined the fees are reasonable for what you’re paying. In addition to being reasonable, you must also ensure the services you’re paying for are necessary.

3. And finally, participants must be given, on or before the date they can first direct their investments, and then again annually thereafter, the required Fee Disclosure notice so they’re able to understand the plan fees and expenses that they’re paying as well.

You should review this notice and ensure it’s clear and meets the requirements under ERISA for disclosure of plan fees to participants. If participants have questions about this notice, you should be able to answer questions for them – after all, if you don’t understand the fees they are being charged, how will participants be able to navigate the disclosure and make sense of it?

This article is just one in a series on Best Practices for Investment Fiduciaries.

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Brendan Speers is the firm’s Director of Retirement Plan Services. He joined Legacy Planning in 2014 and has over ten years of service in the financial services industry – solely focused on helping corporate and non-profit retirement plan programs for the past eight years.

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