Compliance with 408(b)(2) is a Three Step Process

You are engaging in a process to benchmark plan level fees by service category. To determine if fees are reasonable the Department of Labor (DOL), the Courts, as well as many law firms, suggest a comparative process. A comparative process could involve either a formal Request for Information/Proposal (RFI/RFP) or benchmarking. Neither approach is mandated by statute or regulation but both are preferred methods of proving a documented process does exist. Failure to establish a documented process leaves a fiduciary vulnerable in a claim of fiduciary breach. Between the two options, conducting a formal RFI/RFP is the most time consuming and expensive. This may be why some Courts have suggested this process be pursued once every 3 to 5 years. FRA PlanTools™ does offers an RFI/RFP solution to assist with a search for a qualified advisor. The process follows court room standards for determining an advisor’s level of expertise. The cost is $995. For more information on this solution click here.

Alternatively, or at least in years an RFI/RFP is not conducted, benchmarking fees by service category is a time and cost efficient method of monitoring fees. It is important to emphasize that assessing fee reasonableness is not a one and done approach. A fiduciary is expected to monitor fees on a continuous basis. Changes in technology, investment options, share classes, revenue sharing terms, participant count, asset values, regulations and the benchmarking database all influence the determination of fee reasonableness. As such, it behooves a fiduciary to analyze and monitor fees at least annually to establish a process exists to determine fee reasonableness. However, benchmarking is only 1 of a 3 STEP process to comply with ERISA 408(b)(2).

ERISA 408(b)(2) imposes 3 STEPS to secure the exemption from a prohibited transaction when paying fees from plan assets. Remember, the DOL does not care if the company pays excessive fees from company assets but the DOL is intolerant of a plan paying excessive fees. For purposes of complying with ERISA 408(b)(2), the 3 STEPS are as follows: