An ounce of prevention is worth a pound of cure, it is said. The prescription, says a recent blog entry, is to avoid risk factors in the first place.
In its Fid Guru Blog, Euclid Specialty argues that even a diligent process for selecting a plan administrator and for monitoring the administrator and investments will not prevent being sued for excessive fees. Far more effective, they suggest, is to examine such lawsuits to get a look at the risk factors to result in those cases—and make changes to avoid those pitfalls.
The risk of an excessive fee lawsuit for a plan with assets of more than $100 million or with more than 2,500 participants is especially high, says Euclid, if the plan:
- has retail share class investment options despite the availability of institutional share classes;
- has active target-date investments; and
- has recordkeeping fees on a percentage-of-asset basis with revenue sharing that is not capped.
Beyond avoiding those risk factors, Euclid suggests providing a list of considerations to all fiduciaries on the plan committee and asking the plan consultant how the plan addresses those factors. These include:
- Does the plan sponsor pay recordkeeping fees?
- Is the recordkeeping fee on a low, flat fee per participant?
- Has revenue sharing been eliminated or capped?
- Is the lowest possible institutional share class being used for every investment option?
- Are index funds being used for every investment category?
- Is the QDIA in a low-cost index fund?
- Are target-date funds in a low-cost index fund?
- Are investment options connected to the plan recordkeeper?
- Are managed account fees being benchmarked? If so, how?
- Is investment performance being monitored? If so, how?
- Are you eliminating underperforming investment options?
They add a reminder that while documentation alone is not a protection from litigation, nonetheless documenting decision-making for all plan decisions is an important fiduciary duty.
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