The recently finalized regulations reached by the U.S. DOL will require retirement services providers to provide financial trustees with data necessary in determining how reasonable a provider’s fees are. It is regular practice for plan providers to use mutual funds in plan investments. Since mutual funds are commonly categorized into different share classes, each with its own expense structure, providers do not always share all information needed for employers to make the most informed decisions in plan selection.
For example, a service provider may choose to pass some of the operating expenses for a class of mutual fund shares onto the plan participant without alerting the employer to this behavior. This delegation of costs may be used to lower the net expense for the provider while increasing the required investment from the participant. Kent Peterson, Director of Investment Services and Senior Associate Actuary at Securian Financial Group Inc., said, “Cost comparison is a fiduciary best practice when it comes to retirement plan investments. The lowest cost share class of an investment option isn’t always the least expensive.”
“We encourage plan fiduciaries to ask about revenue neutrality and fee transparency when they look at investment options so they can determine the true cost of each option,” said Peterson. “Comparison shopping may reduce a participant’s overall expense and thereby help increase investment returns. This helps show that the plan sponsor takes very seriously the fiduciary responsibilities associated with this important employee benefit.”