We pride ourselves on being open and upfront with our fee structure as well as the costs of those providers that we recommend to our clients. According to employers, one of the most harrowing and mind-numbing aspects of their plan fiduciary obligation is to keep track of, and ensure that, their chosen plan’s fees are reasonable. From administration and recordkeeping to compliance and investment management, how can a company feel assured that they are aware of all fees, and understand them thoroughly enough to then determine how fair and reasonable they are? It’s possible, but it is an overwhelming and ongoing task that really requires an experienced and thorough set of eyes. Guess what? Moneywise specializes in this!

401k plan sponsor best practices dictate the use of some form of repeatable fee benchmarking process and/or opening up the plan for bid in the open market on a regular basis. This gargantuan task should ideally be taken on every 3 to 5 years. The reality is that if not benchmarked properly and regularly, your 401k can, over time, become stale and often become more expensive relative to the broader open market as 401k fee compression keeps the market competitive. Once appropriately benchmarked, that cost analysis serves as your all-important documentation of the plan’s fees falling within a fair and reasonable range.

Or does it? What happens when the benchmarking data shows that your plan administrator, investment manager, or record keeper fees are higher than the other bidding providers in the open market? Even though your current providers may be meeting your plan needs and service expectations, you may be concerned when the benchmarking analysis shows that your plan fees are outside of the accepted range or significantly higher than the other bidding providers. This causes a bit of a fiduciary quandary. In this situation, consider engaging in a fee negotiation with your current providers. The following are some teps to pursue:

1. Named anonymously, deliver the bidding provider range of fees to your incumbent providers. It’s important to emphasize that the results of the benchmarking process are based on: 1) a live-bid benchmarking process and 2) all bidders are provided the current plan demographics and plan design/service structure documents. As such, the results are a true apples-to-apples comparison and thus extremely compelling.
2. Request that the incumbent provider award a fee concession within range of the bidding providers. In most cases, fees are brought down to at least the mid to slightly above mid-range of fees. If this is acceptable to your organization, accept the concession. If not, determine which provider will provide you with the best service at the best value, Keep in mind that this is not always the cheapest choice but the best overall choice.
3. Let your provider know that they are not expected to be the lowest cost, but that you have a fiduciary responsibility to ensure pricing is fair and reasonable for services delivered.

As is the case anytime you negotiate fees, the process can be tricky, and Moneywise can assist with the process. As a dedicated plan consultant, and fiduciary plan advisor, Moneywise is uniquely qualified and skilled in this type of negotiation, and we are proud to undergo this cumbersome and complex task for you on a regularly scheduled basis so that you can be confident in meeting your fiduciary obligations and to ensure your plan fees are fair and reasonable. So, if your plan has not undergone a full and exhaustive benchmarking or open bid process in the last 5 years, you owe it to yourself, and your employees, to complete this process even if it means that you remain status quo. If you don’t know where to start, contact Moneywise to get the ball rolling.

By Justin Leland, CFP®, AIF®
Moneywise Retirement Plan Specialist + Financial Advisor

If you have any questions or would like more information, please call the Moneywise Wealth Management office: 661.847.1000 or directly email: justin@moneywiseguys.com

BE SMART. BE SAFE. BE MONEYWISE.

*Disclosure* The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.