When entering into a Service Provider Agreement for your 401(k) plan, legal review of the document itself is important to ensure that vendor fees are reasonable. Investment advisors, recordkeepers, and other service providers who help with your benefit plans are under increasing scrutiny due to a string of lawsuits and the Department of Labor’s fee disclosure rules. With increased transparency of fees came increased awareness by plan participants of various fee arrangements as well as competition between providers and lower overall fees.
An ongoing trend is fiduciary fee lawsuits which claim that plan fiduciaries are in breach of their fiduciary duty when they allow the plan, and thus the plan participants, to pay excessive fees for services and service providers. While larger plans were the initial targets, now that many of the questions have been settled and successful claims have been brought, the lawsuits are targeting increasingly smaller plans.
These lawsuits claim that the plan fiduciaries are not aware of the fees being paid, allowed percentage-based fees (so fees but not services increased as the plan grew), the fee structure did not reflect the value of services, and/or that the plan fiduciaries did not regularly assess the fees and scope of services for investment advice and recordkeeping services.
Legal Review of Service Provider Agreements
Fiduciaries and their legal counsel need to review both the agreements and fee structures they have with all service providers to ensure they are paying reasonable fees and there are no hidden fees or unexpected costs in the contracts. Regular review of both contracts and fees, as well as confirming payments align with these fees, is only part of the process.
There should also be a regular review of the available options and periodic requests for quotes (RFQs) to ensure the plan is administered at the most reasonable cost and that vendors are charging market rates. Even if you’re satisfied with your current service providers, periodic review is important to help ensure the best fit of services for your organization, the best fee structures, or better-performing options even with the same providers. Knowing that you’re soliciting information from alternative service providers also gives your current providers an incentive to stay competitive.
Furthermore, introduction of new services or lower fees can increase interest from participants in taking advantage of their retirement plan and the new services offered. Seeing that plan administrators are working for participants’ overall advantage also helps prevent lawsuits and participant concerns.
The team of experienced, responsive benefits attorneys at Hall Benefits Law can help your organization with service provider agreement reviews, plan document reviews, and benefit plan procedures review to ensure you’re getting the most from your providers and complying with relevant rules and regulations. To learn more, call 678-439-6236 today or visit the Hall Benefits Law website.