Revenue-Sharing Fee Analysis Now Available at Participant Level
The only cases where FRE is not
prudent are when the cost of calculating the reimbursement outweighs the
reimbursement sum, Reish noted.
“Most plan sponsors are not
engaging in a prudent process—and are merely accepting what a recordkeeper can
do,” he noted.
Thus, Reish advised that a plan’s investment committee first gather
revenue-sharing information from its recordkeeper, and if they are not
knowledgeable about what the data means, hire an adviser to assist them.
“Secondly, the fiduciary must
weigh the burden of the different participants, what they are paying and
whether those paying the revenue sharing fees have a significant interest in
the cost-effective recapture of those fees being credited to their accounts,”
Reish said. “In recent times, there are more providers who can allocate revenue
sharing back to the source in a precise or a relatively precise fashion.”
Reish said he believes precise allocation, if not cost-prohibitive, is the
right way to go, especially now that 408(b)2 requires “all recordkeepers to
disclose revenue sharing, and sponsors are going to know what revenue sharing
they are getting and what the recordkeeper’s charges are. Furthermore,
benchmarking services are available for sponsors to see if the revenue sharing”
fees participants are paying and that are being reimbursed back to the plan are
reasonable, Reish said.
Joe Masterson, senior vice president
and chief sales and marketing officer at Diversified, added that he believes
Fund Revenue Equalization has come of age. “The technology exists to more
equitably allocate revenue sharing, and we believe FRE is now a best practice,”
Masterson said. Diversified, for one, accrues the figures daily and assesses
the money to each defined contribution account monthly.
“There are many [accounting]
benefits to this approach,” Masterson
said. "With FRE, there is no annual reconciliation required. This means that the plan sponsor will not be receiving a bill, and there will be no ad hoc plan service fees to the participant or to the expense budget account due to any potential revenue shortfall.
“If a recordkeeper cannot do pro rata, they need a
reasonable alternative—if not, the sponsor needs to consider changing
recordkeepers,” Masterson said.