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What should a fiduciary consider regarding fees in deciding on service providers and plan investments?

Fees are just one of several factors fiduciaries need to consider in deciding on service providers and plan investments.  When choosing service providers and plan investments, fiduciaries need to consider whether the fees are reasonable, particularly if they are paying the fees out of plan assets. Fiduciaries should continually monitor the plan's fees and expenses to determine that they remain reasonable.

While the law does not specify a permissible level of fees, it does require that fees charged to a plan are "reasonable." Employers should ask prospective providers for a detailed explanation of all fees associated with their investment options and document the comparison and decision to hire a provider.

In comparing estimates from prospective service providers, ask which services are covered for the estimated fees and which are not. Some providers offer a number of services for one fee, also called a “bundled” services arrangement, while others charge separately for individual services.  Compare all services to be provided with the total cost for each provider.  Consider whether the estimate includes services you did not specify or want.  Remember, all services have costs.

Some service providers may receive additional fees from the investment vehicles offered under an employer’s plan. For example, mutual funds often charge fees to pay brokers and other salespersons, and these fees might be paid to the service providers. A service provider may also receive sales and other related fees for the investments they offer.   Employers should ask prospective providers for a detailed explanation of all fees associated with their investment options.

Who pays the fees? Plan expenses may be paid by the employer, the plan, or both. In addition, expenses paid by the plan may be allocated to participants’ accounts in a variety of ways. The plan document should specify how fees are paid.

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