This is where Retirement Plan Benchmarking comes into play. Benchmarking, if done properly, can reduce the liability of these executives that oversee their plans while at the same time making sure the participants in these plans pay a reasonable fee as required by the Employee Retirement Income Security Act, also known as ERISA. Thus, this duty to monitor the reasonableness of fees not only has a legal component, but also a moral component as high fees can reduce a participant’s account balance at retirement by 28% as noted on page 2 by the Department of Labor in their handbook titled “A Look At 401(k) Plan Fees.
A pioneer in retirement plan benchmarking is Fiduciary Decisions, a fintech company that provides comprehensive and actionable technology, tools, and research to recordkeepers, broker-dealers, advisors/ consultants, banks, defined contribution investment only firms (DCIOs), third-party administrators (TPAs), and plan sponsors. Fiduciary Decisions’ patented benchmarking service (US 8,510,198) is the “gold standard” for the retirement industry. As per one attorney defending two plans being sued for unreasonable fees with the help of Fiduciary Decisions Reports, “These reports are worth their weight in gold.”
Why are these reports so valuable? Well, it begins with an executive team that averages more than 30+ years of experience that have a passion for “doing the right things, in the right way” per Tom Kmak, CEO of Fiduciary Decisions. Thus, while some firms use publicly available government filings to try and benchmark retirement plans, Fiduciary Decisions proved long ago that such filings do not contain all the information needed to produce a report that rises to the level needed to help executives make sound fiduciary decisions about a retirement plan that will impact how participants pay for the 25 to 30 years they will spend in retirement.
Next, Fiduciary Decisions builds an apples-to-apples benchmark group of similar plans for each service provider using various mathematical techniques. Then, algorithms help plan sponsors not only evaluate the fees for each provider, but they also evaluate the Quality, Service, Value and Extras (QSVE) provided to the plan. Why does Fiduciary Decisions go through all this trouble? First, there is a legal reason per the DOL handbook on 401(k) Fees: “And, finally, don’t consider fees in a vacuum. They are only one part of the bigger picture including investment risk and returns and the extent and quality of services provider.” Second, Fiduciary Decisions has always known that lower fees are very likely not more important than the services provided that encourage higher savings rates and/or better investing behavior.
Our expertise is built upon our years as industry practitioners and an independent database sourced directly from service providers who want to help their plan sponsors comply with this incredibly important fiduciary requirement
The final step involves the production of an easily comprehensible report that shows for each service provider “What You Are Paying” versus “What You Are Getting”. These reports, along with any notes on actions to be taken, are then placed in the file for the plan which helps protect the plan fiduciaries by documenting a clear and repeatable process (per experts, being a good fiduciary is more about the process than the result). Fiduciary Decisions is proud to say that each year they produce tens of thousands of reports that help executives fulfill this important fiduciary duty on behalf of their plans and their participants.
In closing, offering a retirement plan to participants can be a wonderful benefit. But the executives that do so can be personally liable if they fail to monitor the reasonableness of fees of their service providers. Fiduciary Decisions’ patented reports can not only protect the plan fiduciaries but also help participants enjoy a secure retirement.