Under Internal Revenue Code section 404(c), which came out of ERISA, each plan sponsor has fiduciary responsibilities to protect the interests of the participants. Among these responsibilities is an obligation to ensure that fees charged to participants’ accounts are reasonable. This includes fees charged by investment managers, auditors, attorneys, advisors, and others.
In recent years, high-profile lawsuits were filed against plan sponsors, alleging that these companies allowed unreasonable fees to be charged by investment managers.
A second but related issue involves advisors who recommended certain investment managers and then benefited from revenue-sharing arrangements with those investment managers.
The sponsors’ fiduciary obligations to the participants require that the sponsors always have the participants’ best interests in mind.
On February 3, 2012, the U.S. Department of Labor issued final regulations under Section 408(b)(2) of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”). These regulations, which became effective July 1, 2012, require service providers to disclose their fees to the plan sponsor. Although much of the burden may be on the service providers and not the sponsors, plan sponsors should ask themselves this question: What process do we have in place to ensure that we receive the information that service providers are required to provide us under Section 408(b)(2)?
Also, to avoid common issues which arise during IRS and DOL exams, please be sure your plan documents have been signed (the plan document must be executed for it to be a qualified plan). Also, the summary plan document must match the terms of the plan. And please be sure you read the plan documents at least annually to ensure that the terms of the plan are being followed. These are simple steps but they seem to be overlooked by some sponsors.