“Recent regulations and fee litigation have certainly raised awareness of the need to closely monitor fees and services,” said
The why and the what
Under the Employee Retirement Income Security Act of 1974 (ERISA), plan fiduciaries must act prudently—like considering the interests of different participant classes and determining how the fee allocation method may affect them.
Similar to how an investment policy statement gives guidelines on the management of the plan’s investment lineup, a fee policy statement shows there’s a repeatable, documented process for evaluating the effect of fees on participants and a rational basis for the chosen approach.
“Plan fiduciaries should fulfill their responsibilities prudently—and have something to show for it,” said
For example, a fee policy statement could cover:
- The plan’s purpose
- Fiduciary duties relating to the plan’s payment of fees
- Monitoring and evaluating whether fees are reasonable, including how and when fees will be reviewed
- Fee collection method(s) and how they are evaluated
- Communication of fees to participants
“Plan sponsors often look to their advisors for expertise in managing fees and services,” Burrows said. “Helping them create a fee policy statement is an opportunity for advisors to further demonstrate their fiduciary support.”
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