Michael Barry, president of Plan Advisory Services Group, said fee disclosures started as a project by the Department of Labor (DOL) to help participants make better investment decisions, but it has turned into a focus on helping plan sponsors make better provider choices and investment policies. He cited the recent court decision in ABB v. Tussey (see “Employer to Pay for Failing to Monitor RK Costs”); when a sponsor gets knowledge that it is paying more for a service than a consultant reports is the average, the sponsor must act on that information as soon as possible.
When sponsors get fee disclosure information from providers, Barry said they need to ask three questions:
- Did they tell me what I need to know?
- What did they tell me?
- What do I need to do about it?
Barry suggested plan sponsors retain the services of an Employee Retirement Income Security Act (ERISA) attorney. Plan sponsors must compare their fees with industry benchmarks and document the process of comparison.
On the positive side, Mark Davis, senior vice president and financial adviser at CAPTRUST Financial Advisors, contended sponsors should be confident that fee disclosures will arm them with the information to secure improved fees and less conflict of interest with vendors. In addition, he said he is optimistic this will drive prices of services down. The key for plan sponsors will be to understand how to read the information they are given. He noted that plan sponsors must fire providers that do not provide the right information.
According to Barry, the timing of the decision in ABB v. Tussey is right to offer more insight to plan sponsors. A focus of the case was revenue sharing, about which most plan sponsors are in the dark. Plan sponsors should look for this in the fee disclosure information they are given.In addition, the ruling shows that investment policy statements (IPS), while good practice, can also get sponsors in trouble. The court ruled that ABB did not follow its IPS when deselecting and selecting investments. Barry noted that, in creating an IPS, plan sponsors are creating new rules they must follow, or risk being sued.
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