Can Benchmarking Uncover Money Hiding in Your Retirement Plan?

Paul McEwan | June 5th, 2012

Benchmarking may result in potential savings

Could you use an extra $26,000 a year? A plumbing company realized that savings after discovering it was overpaying recordkeeping and investment fees in its retirement plan.

By benchmarking the plan, this company saw how the fees compared to plans of a similar size across the country. This provided the plan sponsor with solid data to discuss fees with current providers.

While there are plans out there where reasonable fees are being paid, that’s not the case in every situation. From a law firm that saved $46,000 in investment fees to an administrative services firm that reduced its annual recordkeeping fees by $50,000, some plan sponsors have found that their plan fees are not in-line with similar plans.

As a plan sponsor, ERISA requires that you pay only reasonable fees for necessary plan services. But do you know what fees you are paying for each service being provided to the plan? Benchmarking puts this information in a very simple format for plan fiduciaries – all fees listed by service provider, making it easy for you to focus on opportunities for savings.

Think of a retirement plan benchmark report as an ERISA compliance audit. It’s a great way to determine compliance with ERISA. It will help clarify and update vendor arrangements. It will illuminate exactly what and how fees are paid. And it will allow you to critically analyze the value each plan vendor provides.

When reviewing this information in relation to similar sized plans, in terms of both plan assets and number of participants, you can make a precise comparison. You can study any above-average fees for possible action. Just because a fee is above-average though, doesn’t mean it’s unreasonable. However, it does need to be explained.

Remember, many plan fees are based on a percentage of plan assets. So any annual reduction is multiplied many times over as plan assets grow in future years. If the potential savings aren’t enough, the following are additional reasons you should benchmark your plan:

Improve participant success measures.

You’ll be able to see how effectively participants are taking advantage of the retirement savings opportunity provided by the plan. And how well they are allocating their investments – too conservatively, too aggressively or not taking advantage of automated allocation opportunities. If there are issues, you could consider issuing “gap” reports to employees that illustrate if they are accumulating enough assets for a secure retirement.

Improve your fiduciary processes.

Inevitably, while discussing a benchmark report, the topic of best fiduciary practices comes up. Have you reviewed current processes in place to monitor plan activity, including plan fees and investment performance? It’s the old axiom, what gets measured, gets done. Start with a well-written investment policy statement (IPS). Then review, at least annually, the regular monitoring reports provided by your investment advisor to ensure all funds offered in the plan comply with the IPS.

Improve your plan design.

Your benchmark report should also review plan design features like eligibility, contribution types, vesting schedules and auto enrollment, to name a few. This ensures that you are knowledgeable about opportunities for keeping your plan design competitive in the marketplace.

Contact our Ohio Pension Administration Team

When was the last time you looked at your retirement plan? I mean, really, looked at it to know if you were paying too much? Or maybe not getting as much as you should for your investment? Or not fulfilling all of your fiduciary responsibilities?

With increased litigation surrounding employee benefit plans and more media scrutiny regarding fees, your employees are curious about what fees they pay for participating in your plan.  Contact Rea & Associates.  Our Ohio retirement plan services professionals will give you and your employees peace of mind by ensuring your plan is efficient – and maybe find some savings for your own account in the process.

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