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10 Questions the DOL Wants the ERISA Fiduciary to Ask About 401k Fees

November 19
18:57 2009

The Department of Labor (DOL) has placed on its web-site a helpful guidance for the typical 401k plan fiduciary seeking to reduce personal liability when it comes to 401k plan Fees. Titled “A Look at 401k Plan Fees” (click the tile for the link), the US_Department_of_Labor_300site attempts to address the common questions regarding 401k plan fees a fiduciary might have.

Perhaps the most important piece of advice offered by the DOL warns the 401k plan fiduciary “there is no easy way to calculate the fees and expenses paid by your 401(k) plan due to the number of variables involved.” You might be surprised who the DOL suggests trying to find the answers to the following ten questions from.

401(k) Fees Checklist (from the DOL’s “A Look at 401k Plan Fees”)

  1. What investment options are offered under your company’s 401(k) plan?
  2. Do you have all available documentation about the investment choices under your plan and the fees charged to your plan?
  3. What types of investment education are available under your plan?
  4. What arrangement is used to provide services under your plan (i.e., are any or all of the services or investment alternatives provided by a single provider)?
  5. Do you and other participants use most or all of the optional services offered under your 401(k) plan, such as participant loan programs and insurance coverages?
  6. If administrative services are paid separately from investment management fees, are they paid for by the plan, your employer or are they shared?
  7. Are the investment options tracking an established market index or is there a higher level of investment management services being provided?
  8. Do any of the investment options under your plan include sales charges (such as loads or commissions)?
  9. Do any of the investment options under your plan include any fees related to specific investments, such as 12b-1 fees, insurance charges or surrender fees, and what do they cover?
  10. Does your plan offer any special funds or special classes of stock (generally sold to larger group investors)?

Bear in mind, the DOL provides this information primarily as a helpful tool for employees, not fiduciaries. Indeed, the DOL directs the employee to ask the 401k plan’s administrator to provide the answers to the above questions. That means fiduciaries better prepare themselves to know the answers.

There is one more instructive piece of advice the DOL offers: “Keep in mind that the law requires the fees charged to a 401(k) plan be ‘reasonable’ rather than setting a specific level of fees that are permissible. Therefore, the reasonableness of fees must be determined in each case.” A fiduciary cannot hide behind lower fees if the investment option does not appear reasonable.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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