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Fiduciary duty to review fees goes beyond fee benchmarking

Fiduciary duty to review fees goes beyond fee benchmarking

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Consistent with meeting ERISA fiduciary requirements, the Department of Labor has long indicated that defined contribution (DC) plan fiduciaries should independently review fees on an ongoing basis.

Now some recent fee dispute case decisions and settlements suggest that in addition to benchmarking fees, fiduciaries may also want to periodically undertake a more thorough review by conducting a Request for Proposal (RFP) process. This requires obtaining bids from third-party vendors with in-depth analysis of administration, communication, investment, and compliance services and corresponding administration fees charged.

"Completing an outsourcing RFP helps mitigate your fiduciary risk." Cynthia Zaleta, Principal, Retirement

“Completing an outsourcing RFP helps mitigate your fiduciary risk.” Cynthia Zaleta, Principal, Retirement

Completing an outsourcing RFP helps mitigate your fiduciary risk.

Independent fee and service benchmarking for DC plan sponsors is an established best practice for ERISA fiduciaries and serves as a fiduciary risk mitigation tool.

In today’s environment, even if you and your participants are pleased with your current outsourcing vendor, completing a full-scope RFP every 3 to 5 years helps you conform to additional best practices for fulfilling your fiduciary duties and can offer significant defense against fiduciary fee challenges.

A full RFP can also help you identify new or creative services being offered in the market, cost savings available or a fresh approach to administrative practices: a win for everyone.

Combining regular investment expense reviews and independent administrative fee only benchmarking on an off-schedule with an RFP process may serve to further substantially mitigate fiduciary risk. Undergoing a clearly defined RFP process can be a time-consuming project. While you may be able to create efficiencies through use of internal staff or your procurement department, truly limiting your liability requires careful analysis and following a formal due diligence process with expertise you may not have readily available.

Even if you decide not to change outsourcing vendors, an RFP process allows you to negotiate better fees and services with your current provider, if needed. This process also allows you to enhance or institute service level agreements with meaningful penalties for non-performance.