A soon to be announced change in ERISA Section 408(b)(2) will demand unprecedented disclosures of information by firms that deliver services to ERISA plans. The disclosures that will be made to you will focus on compensation paid to your plan's service providers, both direct and indirect, and their conflicts of interest with your plan. It is possible that the information will overwhelm you, and even disturb you.

The Employee Retirement Income Security Act of 1974 ("ERISA") spells out key fiduciary duties for pension plan sponsors, including:

• Understanding the total costs of sponsoring a retirement plan and periodically evaluating plan expenses; and
• Ensuring that expenses are "reasonable" for the services received.

A majority of service providers, and many investment advisors, receive indirect payments. Such payments from mutual funds are typically either marketing ("12b-1") or administrative ("sub-T/A") fees and are referred to in court cases as "revenue sharing." There's nothing inherently wrong with these payments, but it's vitally important that fiduciaries understand how they are applied and disclosed.

In the past, many in the industry have either been reluctant to disclose revenue sharing, or have made disclosures difficult to find and compare. If these revenues are retained by the provider, but not clearly disclosed, other plan fees can appear lower and more favorable to the plan sponsor than they really are. Because many fiduciaries cannot easily identify the total cost of the service, the task of assessing these costs is much more difficult. The Department of Labor has taken the position that fiduciaries who fail to know about and evaluate indirect payments are breaching their fiduciary responsibilities.

Fiduciary responsibilities include evaluating whether the total amounts received by service providers are reasonable, and whether payments cause potential conflicts of interest. Clearly, if potential conflicts exist, and if some participants inappropriately pay more fees than others, plan sponsors may be exposed to increased liability.

Benchmarking vendors' costs is a long-standing management discipline that businesses of all size perform. Few persons, who obtain services or products for their employers, whether it is a manufacturing, distribution, or service business, would do so without knowing exactly what they are paying for. Yet the U.S. retirement plan industry is saturated with service arrangements that lack the slightest hint of competent comparison with alternatives. Reasons for this vary, but the most common excuse heard is "fees are too complex."

In spite of the excuses, ERISA makes testing of fees for services a fundamental duty of primary fiduciaries. Seek outside help if you do not have the internal capabilities to properly evaluate and benchmark your current service providers' fees and services. Now is a good time to get help in guaranteeing that your plan's fees are reasonable.

Roland|Criss offers a valuable unbiased program for learning if your plan's fees are reasonable. It exceeds the standard in the program used by the Department of Labor's investigators. Contact us now and ask about our fee benchmarking program for ERISA plans at admin@rolandcriss.com or just call us at 800-440-3457.

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