PSNC 2010: Benchmarking Fee Data Still a Challenge

That was one conclusion of a fee disclosure panel discussion at the recent PLANSPONSOR National Conference held in Chicago. 

Panel members told attendees that comparing plan fees to their peers’ plans can be helpful in determining whether such expenses are “reasonable” under the Employee Retirement Income Security Act (ERISA), but that the process depends on having a reliable database to use in the comparison. 

Jennifer Flodin, Chief Operating Officer and Co-Founder Plan Sponsor Advisors, said the continuing issue of whether plan sponsors understand the nuances of plan fees means some will give bad answers to polls used to build the benchmarking databases.

“Eventually there will be better sources of information, but right now it’s a bit mystical,” agreed fellow panelist Stace A. Hilbrant, Managing Director 401k Advisors, LLC.

Stephanie Napier, Vice President & Senior Trust Counsel, Marshall & IIsley Trust Company, said the Form 5500 was originally intended to provide benchmarking data but that the business has gotten so complex that the form hasn’t lived up to its potential.

When it comes to revenue sharing, Hilbrant said for a sponsor or adviser to ask about the fees was considered extremely unusual at one point. “The business is coming full circle: what used to be a crazy question (about revenue sharing) is now part of the new (fee disclosure) legislation,” he said.

Panel moderator James E. Graham, partner, CapTrust Advisors, said particularly disclosing revenue sharing information could generate more than its share of problems. “I shudder to think about giving revenue sharing information to participants,” Graham said. “It’s like giving car keys and whiskey to teenage boys. It’s just not a good thing.”

Graham added: “They’re going to get all this information they don’t want and they don’t understand and they are going to make even worse decisions than they are now.”

A sponsor who runs into problems getting revenue sharing data should consider it a bad sign of things to come. “You need know what they’re earning and what is being generated by the investments in your plan,” Flodin declared.

While the panelists agreed that the notion of further educating participants about fees was a good idea in concept, several expressed reservations about how it will play out.

“From a consultant perspective, we think it’s a step in the right direction to get everybody on the same page about what are the fees, who’s getting what, where do the revenue streams go?” Flodin said.”(But) it’s far from perfect. There are a lot of things we think are going to be missed on this (required fee disclosure) document.  While it helps with disclosure, at the end of the day, how is this information going to be utilized? We don’t think it’s been thought through about what everybody is going to do with this document now that everyone is required to report.”

Hilbrant added: “That the different governmental entities are not in lockstep about what the end point is going to look like is even more frightening.  If you’re a plan sponsor who doesn’t like to talk about these details and just meet with the vendor every once in a while to discuss how the investments are performing, this is going to be a big deal.”

The audio from the conference session is at https://si-interactive.s3.amazonaws.com/prod/plansponsor-com/wp-content/uploads/2017/05/25041049/MmediaContent.aspx_.jpg?id=6442472847.