Retirement Plan Fees and Investments: Your Participants Are Watching

On previous occasions I have referenced the fee disclosure rules for retirement plans with an emphasis on fee disclosures. Today I discovered that the AARP has just introduced an on-line tool for calculating 401(k) fees. This was done in conjunction with their release of a survey that had some interesting results: 62% of respondents were unaware of the fees they were paying in their 401(k) plan 81% of respondents said fees were very important or somewhat important to them 71% of respondents believed the paid no fees whatsoever 32% said they had no idea how fees impacted their retirement savings As I read these figures, it leads me to believe that as a larger portion of the population gets closer to retirement, fees and efforts to reduce those fees by fiduciaries is becoming increasingly more important. Then, I happened upon a class action case recently filed in US District Court in Washington that alleges that a pension plan fiduciary breached its fiduciary duty to the participants by over-investing in alternative, risky plan investments. This allegedly caused the plan to become significantly underfunded, putting pension benefits at risk. The claim is that the alternative investments were too complex to be given appropriate due diligence by the fiduciaries and that the fiduciaries may have put the company's own interest ahead of the participants. This case was just filed so there is no ruling in it, but it does bring to bear the fact that participants are becoming more savvy about where their pensions are invested and what the risks and costs might be. So a careful, prudent fiduciary has to be reminded to take steps to reduce costs, report adequately and follow a prudent investment policy. Don't overlook the need for an investment policy statement and consider providing more information to participants about fees on their retirement accounts so that they themselves have options. Make sure your communications are properly vetted by your benefits professionals before they go out, but definitely think about increasing communications. Sometimes the best defense to a claim for breach of duty is showing in advance steps taken to satisfy that duty.

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