Are Your Retirement Plan Expenses Reasonable? Would the DOL Agree?

So far on the blog I’ve been talking a lot about health plans, so I thought I’d take a break this time around and talk about retirement plans. Although my background is in health & welfare benefits, I’ve learned a lot about retirement plans over the years, and a lot about the state of the market in South Louisiana. There are a few good advisors out there, if you look for them. But unfortunately I have found that there are more advisors in our market that take a “set it and forget it” approach with their clients. I’ve also noticed that a good number of plan sponsors are working with an advisor who has the same logo on their business card as the recordkeeper of the plan.

Unfortunately this doesn’t work well if you get audited by the Department of Labor (DOL). The DOL has lots of rules of which plan sponsors need to be aware. But one of the most common things I see overlooked is the requirement that the plan sponsor ensure that the cost of running the plan is “reasonable.” Clearly most plan sponsors don’t know how to make that determination, so how is it done?

The answer is pretty simple: you benchmark the plan by getting competitive quotes. The DOL wants you to do this every 3-5 years, but I find that many plan sponsors haven’t looked at it for much longer than that, because it’s easy for the advisor to “set it and forget it.” Or, even worse, if the advisor works for the company that is doing the recordkeeping and/or administration of the plan, what incentive does the advisor have to go through this process? None, of course, which is why the task rarely gets done.

The good news is that the process doesn’t have to be complicated or painful. In fact, when we do benchmarking, often we don’t even make changes to the plan’s service providers. But – and this is a big but – by putting a little gentle pressure on the incumbent service provider, we often coax lower fees or more/better services out of them. When managing your retirement plan, you need an independent advisor whose incentives are entirely aligned with your as a plan fiduciary. And an independent advisor should happily perform this benchmarking analysis for you.

Do you need to find out if your retirement plan costs are reasonable? Give us a shout at bayoubenefits@gmail.com