One Simple Fiduciary Step to Avoid Paying Excess Fees
I was reviewing a service agreement for a client, I couldn’t help but recall one of the “slap-the-forehead” violations I would see more often than you would expect as a former Department of Labor investigator. In administrative committee meeting minutes, I would read a detailed multi-meeting explanation of extensive fee negotiations between the committee and a service provider. Usually, the committee would be leveraging plan asset size or the responses on a request for proposals to obtain reduced fees, which would (hopefully) follow with an entry recording the fee reduction. With surprising frequency, some plans neglected one significant step…making sure that the service provider actually applied the reduced fees. As simple as it may seem, service providers sometimes fail to flip-the-switch and implement the reduced fee schedule, and plans that authorize providers to automatically deduct expenses may not even realize it. Even if the service provider agrees to reimburse the plan for the difference, no fiduciary wants to find themselves in that position, particularly if they happen to be under the microscope of a DOL audit.
Not only must the fees paid by a plan be reasonable, but a fiduciary must ensure that the plan only pays fees that it has actually agreed to pay. As a practical tip, if you have entered into a new fee schedule, make sure that the individual responsible for approving plan expenses is familiar with the changes and has the agreement in hand when reviewing the first few rounds of plan invoices. If they do, it should be easy to immediately catch any errors and reap the rewards of your negotiations rather than enter a new round of negotiations to recover the overpaid fees.