PD08: Reasonable Doubts

According to John Low, Regional VP at Nationwide Financial, when most people think about benchmarking, the first thing that comes to mind is fees.

Also speaking at PLANSPONSOR ‘s 2008 Plan Designs conference, Gail Anderson, Director of Finance at Bell Boyd & Lloyd LLP, claimed that as a plan sponsor she had tried benchmarking as a way to understand her fees, but until recently she “wasn’t sure there was any true benchmarking out there.” She added: “Even if a plan apparently compares favorably to the benchmark, there is no real guarantee, and there are always other factors to consider.”

align=”center”> The Panel Audio File


Low suggested sponsors consider their plan’s performance corresponding to how much risk is being taken in investment options, and to take care with their fiduciary processes for managing the plan. He cautioned that reasonableness was not solely dependent on fees, but also the qualitative aspects of a plan: if the financial adviser has adequate credentials and experience and their input would benefit the plan sponsor, if the recordkeeper takes care with documentation to make sure proper fiduciary processes are followed.

Plan sponsors have to dictate what they expect from their financial advisers and providers, what services they will require, and how they want them to be handled. He noted that without first knowing what they need, sponsors cannot determine what fee would be reasonable for those services.

What’s Covered?

When examining fees, it is not always easy to determine exactly how to allocate which portion of the investment revenue is actually covering investment expenses as opposed to what goes towards recordkeeping or administrative services.

Ron Eisen, Principal at Fiduciary Benchmarks, Inc., suggested dissecting fees-identifying and dividing what goes into recordkeeping from adviser costs, administrative services, custody, and trading expenses.

Anderson claimed that, “Until this year, [plan sponsors] have still been paying recordkeeping fees” despite the fact that, within most plans, that extra cost is unnecessary and many vendors would actually drop it if asked. It is exactly because so many plan sponsors are not aware of the fact that they are paying more than they should or need to, that transparency and fee disclosure need to move forward.

Eisen does not expect transparency to fully develop in the next several months, but rather, the next couple of years.

Though the panelists all agreed that determining what qualifies as a "small" plan can vary according to individual opinion, assets, number of active participants, or any number of qualifications, Eisen defined the "small" market as plans made up of $5 million or less.

With that classification, he said, they make up about 97% of all the plans in America - something to keep in mind if plan sponsors want to be able to identify reasonableness and make that information accessible.

Panelsists agreed that Anderson's concerns about the legitimacy of her expenses is widespread among plan sponsors of all sizes.

- Sara Kelly