Michael A. Webb, vice president, Cammack Retirement Group, and David N. Levine, Groom Law Group, answer:
Good question! Despite what some might tell you, there is no “right” or “wrong” way to determine whether fees are reasonable. We have listed a few resources below. Most importantly, remember it is about the process that your plan fiduciaries use—not whether they are 100% right or wrong.
One option is to see what other similar plans are paying. There are surveys available (an internet search for “average recordkeeping fees” turned up several), though keep in mind that most survey information is from the 401(k) market, where average pricing can sometimes be lower compared to 403(b) plans due to the larger number of vendors servicing that marketplace. Also, remember that surveys can often take into account different factors and services that may or not be important to you—it’s not necessarily about the pure dollar cost. It can be hard to do an apples-to-apples comparison, so your process is what really matters.
A second option is to ask your recordkeeper for fee benchmarking information for similar-sized 403(b) plans, and even 403(b) plans of a similar type (e.g., health care, university, etc.). The reason the latter information might be more useful is the level of services provided to a particular type of plan sponsor may be more or less than that provided to other types of 403(b) sponsors, affecting pricing accordingly. The disadvantage to obtaining pricing from your recordkeeper, however, is that they have a business interest in demonstrating to you that your pricing is reasonable and competitive, even though it may not be. Having said that, the Experts have found that this information has value, and is certainly better than possessing no information at all.
A third option is to get outside help such as from an adviser (and you’ll want to make sure you understand the adviser’s level of independence). Some consulting firms advise many 403(b) plan sponsors, and thus may be able to compare your pricing to those of true peer institutions. More importantly, advisers are in tune to the level of services provided by the recordkeeper and other service providers to each of their clients, and thus may be much more equipped to explain variances in pricing and whether such variances are reasonable given the level of services provided.
We know it is not black-and-white, just remember, it’s all about process.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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