READER POLL: Has Litigation Led to Change?


At times it seems that every plan in American with more than $1 billion in assets has fallen short of at least what the plaintiffs’ bar has sought to establish as prudent. This week, we asked readers how, if at all, their practices have adjusted.

The retirement industry has been confronted with excessive fee litigation of one type or another for more than a decade and a half—and there’s no sign of it letting up. Those cases have put forth certain assumptions (presumptions?) regarding prudent practices. 

In fairness, without explanation the assertions might very well constitute a problem—and doubtless these plan design issues are part and parcel of many a committee review. On the other hand, the lawsuits seem to put forth the notion that the mere existence of these conditions constitutesa de facto breach. Specifically, we’re talking about issues like active versus passive investments, share class selection, recordkeeping charges as per participant or asset-based, and the frequency of requests for proposal (RFPs). 

I. Active Versus Passive

On the subject of active versus passive, we asked readers how they approached it, and they said:

  • 56%—Choose the most appropriate funds, regardless of whether actively or passively managed.
  • 23%—Choose passive options when they make sense, but not obsessively.
  • 15%—I’m inclined to go with active management, where appropriate.
  • 6%—All other things equal, I opt for passive management.

Now, those choices were admittedly somewhat “limiting,” and we provided an opportunity for readers to comment—and they did:

I believe in aligning my investments with my values, especially for the preservation of the environment for our children and grandchildren. Actively managed ESG funds are my go to.

The choice between active and passive is impacted by the perspective of the committee.

We have traditionally been an active management advisor, however, over the past several years, the indices have become more attractive in some sectors. We have moved to using the index when there is no compelling reason to pay more for a top decile or quartile fund.

Generally look for lowest expense fee for blended asset classes.

We often offer active and index funds in different asset classes to give participants choice.

We use passive in the blend categories with active in Growth and Value. This provides choice for the participants regardless of our preference. Committees will often have their own opinions as well which we take into consideration.

Active management where it can add value (fixed income, EM equity, real estate, some domestic & international equity), passive in homogenous asset classes (S&P, mid-cap blend, small-cap blend, developed international).

We use a core/satellite method to include active in the growth/value and passive in the blend options.

We use very purposeful menu construction and believe that appropriate investment lineups offer both actively and passively managed investment options.

Each situation is different and ability to navigate without respect to hold strategies when it comes to income is important.

Usually for Large, Mid, Small blends I offer both an active and passive fund in the same peer group. For other times I tend to select a passive option.

We will typically use index funds for all of the blend style box categories. We see this being used in $500 million endowment management and feel it is equally important to offer the same approach to plan participants if they choose.

A good menu like any good portfolio is going to optimize returns and risk. Most optimal portfolios will include a mix of both active and passive where appropriate—it’s not an all or nothing. However, most target date funds are still utilizing one or the other and only a few have started to become hybrids. More diversification for TDFs will be key to their success going forward as the TDFs evolve.

Participants should have the opportunity to decide for themselves whether they want active, passive, or a combination. The menu of choices should include both. All investments offered should pass a fiduciary level review.

We review the full investment menu and choose the appropriate funds for the plan and plan Participants. Typically, that includes active and passive funds.

We use passive strategies in equity markets and active strategies in bond markets.

There should be an appropriate mix of both for participants to choose from.

There is misconception and communication that passive funds outperform active funds because of the lower fees. In fact, our job as consultants is monitor both performance and fees and select managers that outperform their index net of fees. Selecting a passive fund just because its low cost and easy doesn’t provide the value a consultant should be providing.

Being prudent doesn’t mean picking the least expensive of the least risky. It has to be reasonable and appropriate based upon the information gathered by the employer through their internal and external teams.

We tend to use Passive in the domestic blend space and use Active throughout the menu otherwise. We do not believe that passively investing in the international market is the most efficient choice and feel the same way in fixed income. While we understand that participants do prefer and seek low cost options, we will offer passive solutions to complement the active offerings.

We have done some internal studies and passive is good for some spots and active is better for some spots. We utilize both strategies.

Especially in fixed income, active can provide better risk-adjusted returns.

I often discuss options with the plan sponsor to get a feel of what they feel comfortable with. I give them pros and cons as we analyze the characteristics of the plan. Many times, I feel comfortable going with a blend so we can make the argument for both types of funds.

Depends upon the plan sponsors preferences and the sophistication of the workforce as to the final menu mix.

Run the funds through FIRM and go from there. ESG by definition is somewhat active.

We generally recommend passive in the blend asset classes, plus fixed income and international—sometimes more—which provides those who favor index investing a reasonable ability to diversify.

I generally use active for value and growth spaces; passive for blend.

I prefer a blend of active & passive funds. I recommend actively managed funds in the corners, LCG, LCV, etc. and Index options in the Blend Categories.

In general, we go with passive in blend equity categories and active in “style” categories, e.g. value and growth. We also believe that all of our clients’ lineups should include both active and passive.

We provide 3 options: actively managed funds for those who want them; index funds for those who want passive option; TDF suite. All funds must meet our investment committee screening criteria.

We’ve also used an evidenced based investment philosophy using low cost, passive investment products. With these we build risk-based portfolios for employees.

Data needs to drive, and we review multiple time periods. Returns are net of fees. We like to offer a set of index funds in major asset classes in combination with active funds.

We typically use a suite of four index funds to cover the broad asset categories that reflect the majority of the investment universe (US Large stocks, US Mid/Small stocks, Foreign stocks, US investment grade bonds), and then round out the plan menu with actively managed funds in more specialized categories. Target date funds are increasingly being selected as either index based, or a blend of indexed and active, partially in response to lawsuits, partially due to the ongoing downward trend in TDF fees—fully active funds rarely have below median expense ratios relative to the category.

We look for passive funds in efficient markets and use of well managed active funds in inefficient markets.

II.  Share Classes

With regard to share class selection, readers said:

  • 56%—I opt for the best value for the plan—and sometimes that means a higher cost share class with revenue-sharing offsets.
  • 31%—I always opt for the lowest price share class.
  • 13%—I’m more focused on net returns than cost alone.

Some additional comments:

As long as the recordkeeper has an easy way to rebate revenue sharing to participants we go for the best value. If it’s complicated or the savings are minimal, we opt for simplicity.

I opt for best value and it depends on how the client elects to pay the plan fees. Although revenue sharing is on the decline and being replaced with actual participant deductions, some clients prefer the rev share method.

It all depends on the record keeper platform and share class assignments associated.

If we don’t get the lowest share class, we want the fund with rev share that goes back to the participant that earned it.

Some platforms do not use zero revenue sharing funds and therefore, for a micro plan, lowest cost share class is not available.

None of the above and all of the above. We prefer no-revenue sharing share classes. Clean and simple. However, we consult with our client to determine what they most favor – we provide pros and cons – and help them decide what’s most appropriate for their plan. In situations where there is revenue sharing, we strongly prefer that clients choose to have that revenue sharing credited back and fees levelized across all investments.

We typically offer the lowest share class or 0-revenue funds, however we certainly see the argument for using the lowest net expense ratio fund. We have yet to find an efficient process to continually review lowest net cost on a quarterly basis.

Revenue offsets are great, but they’re not practical, nor easily audited and nor can they be compared (rollover considerations, etc) as this creates an improbable or impossible task to even (1) know how to apply the offset or (2) that it even exists. If it’s not done inside the NAV, but credited back monthly or quarterly, participants and sponsors don’t understand what it is or how it works.

I opt for zero revenue share classes where they are most efficient. When having a discussion with clients about fee levelization and the benefits of a complete zero revenue share class line-up, I will also illustrate the most “net efficient” share class menu and demonstrate the cost savings and process for revenue-sharing offsets. Ultimately, the plan sponsor committee should make the decision based on the approach they think makes sense for their employee base. I believe it’s our role as advisors to provide the insight on the 2 alternatives

Documentation, ongoing education and benchmarking are important here. Most new clients are in “clean” shares with zero revenue sharing; however, I have long-term clients that are in revenue-sharing offset menus that net a lower cost.

As a fiduciary that charges an advisory fee, I am obligated to use the lowest priced share classes in plans

If we can explain it to all participants, then I feel you have a good standing on share classes. Rebates and refunds, positives and negatives, credits and debits are not easily tracked by participants on their statements.

Share classes are a big part of the focus, but at the end of the day, I always choose the best value for the plan.

It’s okay to pay a little more as long as you get more in return.

Present lowest. Advise lowest – let the plan financials help the committee decide how to pay fees – along with pros and cons to selecting any find with higher than best in class available.

I like to go for zero revenue when possible so we are not required to negotiate the revenue sharing with the recordkeeper when we make investment changes.

If you have a fee level platform I not only use the lowest share class but sometimes you can find arbitrage situations to reduce the cost further.

Depends on recordkeeper’s fee leveling capabilities. If full flexibility, then if there is a big disparity in pricing, we will go with best value. If it is only 1-2 bps, we will go with least expensive, knowing that the 1-2 bps will even out with time.

All of our clients have transparent fees so whatever fund we choose, we use the lowest cost share class. That said, we talk about “value” and we do have one client who has us use the “lowest cost share class when considering revenue offsets”.

We focus on lowest cost, best in class as long as they meet the criteria we apply. Sometimes, we have to select a fund share class based on what’s available from the RK when open architecture isn’t available for the plan. We also pay attention to “most efficient” share class. Sometimes the lowest share class isn’t the lowest cost overall. Unfortunately, on certain platforms, the options are limited. In those cases, it’s important to note in meeting minutes.

CITs or R6 unless no choice, then Institutional.

I believe in using the lowest available share class. If a particular fund doesn’t offer a fund without revenue sharing we will seek another option. Plenty of great options available. Revenue sharing even when credit back isn’t transparent and makes things confusing and messy for plan sponsor and employees. Full clarity will produce better results for all involved in my opinion.

If recordkeeper can provide the revenue sharing back to the participant, not the plan, then we look to optimize share class–meaning do what is net least expensive for participant. However, if the recordkeeper off-sets at the plan level, then we try to strip revenue sharing. It is a peeve when mutual fund has a “less expensive” non-revenue sharing fund shareclass that is actually more expensive than a more expensive share-class net revenue sharing.

Split between the first two answers, historically, the “best value” was our approach, but newer clients are increasingly adopting the lowest price share class approach.

III. Regarding RFPs

With regard to the frequency of issuing/relying on requests for proposal (RFPs), readers indicated:

  • 34%—I insist on doing an RFP every three years.
  • 32%—I only insist on doing an RFP when it seems necessary.
  • 16%—I insist on doing an RFP every five years.
  • 15%—I never insist on doing an RFPthere are other ways to assess providers/capabilities.
  • 3%—I actually find that doing an RFP every three years does as much harm as good.               

On this one we also got a lot of additional comments—and some interesting variety. A sampling:

As if work primarily with micro plans, RFPs seem excessive. I benchmark every year and monitor service. I also assess service and monitor client satisfaction and at least annually ask my client if they would like to take the Plan to market.

RFP should be done when Committee is open to changing providers…not as a tool to benchmark fees. other approaches can be used to effectively benchmark fees

Rather than do an RFP, I benchmark the plan using an independent, third party service. If the client is happy with their provider and the fees prove to be reasonable, we’ve used a less time-consuming approach for all parties. If fees are high, I use the report to negotiate with the existing vendor. If there are issues aside from fees, I do an RFP.

We do a complete “all in” cost analysis annually with all of our clients.

Depends on the client and the provider. We benchmark fees once a year so a full RFP every three years may not be necessary. After five years, it may be time for an RFP for most clients, but some clients may not require it as long as the fees and services are reviewed.

We include RFP work with our annual fees as we feel it is an important part of our fiduciary duty in proving reasonableness of fees. We do them every three years, or more frequently, if the plan is rapidly growing.

We regularly benchmark pricing, but an RFP provides us the opportunity to do a deeper discussion on services and value for the price. Markets change and so do the RK

I only encourage an RFP if the client is truly looking to make a change. If the goal is to look at how the current provider’s fees stack up, I would simply benchmark the plan using something like Fiduciary Benchmarks. No need to bother wholesalers just to get market pricing…it’s not an apples-to-apples comparison since the proposed providers haven’t been dealing with the plan financials.

We say best practice is every 3-5 years, but don’t insist.

I benchmark plan services and fees every 3 to 5 years, but do not necessarily conduct a full-blown RFP. I also review plan fees with my clients annually.

It turns out for most plans, just re-negotiating fees with existing providers is sufficient. It keeps fees close to benchmark cost.

We benchmark through live bid requests every 3 to 5 years. RFPs are addressed with clients and most opt for the less involved benchmarking process. We have found that many advisors call our benchmarking process an RFP process. We believe there is a big distinction between the two.

Almost every plan goes through the RFP process every three years. There are exceptions for some that don’t make sense.

RFP every 3 years is a best practice, unless major changes in plan demographics, M&A or issues can’t be resolved at the current provider. Just since 2018, provider fees and competition, especially in 2020 have yielded extraordinary results as the top providers are vying for plans and have raced to the bottom, including fee waivers on recordkeeping for plans of all sizes. If you haven’t been running an RFP for your clients in 2019 and 2020, you’re paying more than a plan that is currently bidding and there has always been a disconnect in fees between in-force business versus new sales.

We recommend doing RFP’s every 3-5 years…with formal RFP’s during that time range and informal RFI’s more frequently for fee benchmarking purposes (12-18 months).

There are good benchmarking tools that do a great job in doing the evaluation, which makes the RFP process unnecessary.

Depending on the size of the client is when I conduct an RFP. Usually a limited scope RFP is done every 3-5 years or if there has been significant change in the organization or provider.

We typically run RFPs on plans every two-three years.

Annual benchmarking and provider feedback conversations.

Following benchmarking guidelines plans need to be formally reviewed every 3 years.

We prefer to use a benchmark fee comparison tool every 3-5 years unless the plan assets have grown significantly.

Our pricing tends to come in waves. While we target an every 5 year model, we are often reviewing providers on an on-going basis due to changes within the markets. We are constantly educating on services the current provider offers while also speaking on outside offerings. These conversations help gauge concerns the plan sponsor may have and value they feel different offerings/solutions may provide.

I always incorporate this into the service agreement. Sometimes the RFP process is more ‘serious’ than others. However, it assure the trustees that the plan is competitive and even they are not considering other vendors at this time, I’ve found many times that the incumbent will lower prices or increase services in some capacity so they retain the plan.

DOL recommends 3 – 5 years. I prefer to RFI. Dive to the bottom seems to be some folks’ mindset.

I recommend, not insist on doing an RFP every 3 years and I fee benchmark annually.

We benchmark the plan annually, and encourage an RFP when the client is dissatisfied with service and/or we can’t get fees with the incumbent to where they should be.

There are times when we go beyond three-year intervals based on facts and circumstances, and also are times we conduct a more basic fee benchmarking using actual proposals from recordkeepers, but do not create a comprehensive RFP questionnaire.

Facts and circumstances dictate when RFPs are conducted.

Typically, we go to RFP every three years but in some cases we will spread out the timeframe. We benchmark every year.

It’s my practice to be sure we at least do an RFI every 3-5 years. However, sometimes clients hesitate because they think a transition/conversion will be disruptive. We benchmark fees annually so at a minimum, clients see the cost. If it’s been too long between RFPs, it’s easy to show potential cost savings through an RFI, especially for smaller plans. Larger plans are good about benchmarking providers, sometimes including us/me, regularly.

I can’t say I insist. If plan metrics warrant a formal RFP or if service declines, we will do one. We benchmark fees annually to make sure costs are in line.

Different frequency for different size and complexities of plans.

We do annual fee benchmarking with 3rd party data at least annually. We will suggest RFP when benchmarking indicates need or there is a plan event/milestone where an RFI/RFP should be done as a fiduciary documenting exercise.

RFP’s can be useful but identifying a plans critical aspects & weakness are more important. RK’s drive RFP’s and a new RK doesn’t mean a better plan.

I provide fee benchmarking on a regular basis and RFIs every 3-5 years and full RFP only when the client is not satisfied.

I disagree with plaintiffs’ counsel’s assertions that a 3-5 year RFP frequency is necessary, but going more than ten years without an RFP seems like its potentially problematic. We tend to do formal fee benchmarking at least every couple of years for most of our larger client plans.

IV. Per-Participant or Asset-Based Fees

And then, we asked about recordkeeping fee preferences—specifically, asset-based or per participant:

  • 60%—I’m ok either way, so long as the fee is reasonable.
  • 15%—My strong preference is per participant, not asset-based.
  • 14%—I really don’t have a personal preference – it’s whatever the plan sponsor prefers.
  • 11%—I prefer asset-based, so that larger balances subsidize the expense for smaller accounts.

Comments? Why, yes we got some:

Many of my clients use a format where the fee is calculated based on per participant, but charged against participant accounts using asset-based approach. I feel strongly that it is a bad practice to charge a per head fee to small accounts.

All of our plans are asset-based, but on larger plans, it makes sense to consider a blended approach. Going to a straight per participant charge can be challenging in smaller plans with higher fees.

Participants understand flat fees much better than asset-based fees and like that they go down as a percentage of assets as your account grows.

Per participant in large market, asset-based or per part in mid-market, likely asset-based in small market.

We require recordkeepers to provide us with their required revenue; all simply provide asset market value-based pricing. We will discuss the per participant vs. AMV based pricing with clients / prospects. Most often, they opt for the AMV pricing.

I leave the decision for the sponsor to make.

The “it depends” answer definitely applies here. The plan’s demographics are going to tell the story whether an asset-based or per head fee is going to be most advantageous at the time that’s put in place and constant monitoring of whether that continues to be in participants’ best-interest must also be done.

It’s our role as advisors to share the pros / cons of both approaches with our plan sponsor clients

Different products and pricing vary based on plan size and participant count. With low average balance, high participant plans, asset-based fees make sense. On the other hand, flat fees look stronger when there is a high average balance/low participant count.

We struggle with this because why should a new participant with zero assets pay the same fee as a participant that has been in the plan for years. From a servicing point of few, the latter has experienced the benefit of the provider far longer. It truly is a plan trustee decision.

Although we do steer them to acknowledge both methods and take a position on one or the other.

The big thing for me is that it is reasonable. I probably prefer asset based if I had to choose, but I’m of either way as long as the fee is reasonable to the client.

Asset-based is hard as the larger balances are usually with the owners/ more vocal employees.

Our firm presents both options, including comparisons at different account balances. This allows plan sponsors to make the best decision for their employee demographics. For larger plans, per participant is typically the best choice (& easiest to communicate long-term).

It depends on the plan demographics, average account balance, if they are actively hiring what types of pay grades they are hiring etc.

Most of our clients prefer asset-based.

I take a hybrid approach: The charge is per participant but a pro rata asset-based charge is assessed each participant on a monthly basis to cover the cost of the total charge.

I prefer a per participant fee structure however that structure may not make sense when you have a plan with a lot of participants and low assets. So I look at it on a case-by-case basis and negotiate fees (whether fixed or asset based) in the best interest of plan participants.

We present both. Client decides.

It depends on the size of the plan and number of participants. I seek the most advantageous pricing structure, while accounting for potential asset & participant growth.

I continue to have concern over this “per participant fee is best”. Many of our clients simply don’t have enough participants to fairly spread costs on a per capita basis. I have become obsessed on this subject and we show fees in both ways. It continues to be a challenging issue frankly.

Educate the plan sponsor on the options and do what makes the most sense for them

The largest plan I manage has a per participant fee so budgeting is easier. I also have a # of plans that write the check for fees so it’s not passed to participants. Otherwise, most are comfortable with asset based so we work hard to keep investment costs as low as possible, even with actively managed funds.

Sometimes we have implemented a hybrid approach — a flat fee plus an asset-based fee.

We went back and forth modeling both for a $200 MM plan. They opted to remain asset-based, with QDIA carrying most of the load.

For some plans, per participant makes sense. For others, asset-based does.

Most providers will still allow this structure to be administered pro-rata as to not have a large expense ratio for small accounts if the client desires. I also find that using a per-participant fee structure provides more certainty to plan sponsors. This makes them more comfortable paying a larger portion of the recordkeeping or TPA costs.

It is unlikely in the small plan market to find anything other than asset-based fees.

We like fees to be predictable and employer paid, and typically a per participant fee is more predictable. However, if asset fee is actually less than per-participant fee, then we will support that.

I can see both sides, but generally, lean towards a per-head fee but allocate it pro-rata.

This depends on plan size, above about 1,000 participants/$100 million in assets, per participant pricing dominates, below, there’s a mix, depending on provider and client preferences.

Litigation Led?

Asked what, if any, of their practices had changed based on litigation trends, readers responded:

  • 61%—I’m aware of the litigation trends, but my approach(es) really haven’t changed in the past two years.
  • 25%—I’m more inclined to emphasize the use of lower cost share classes.
  • 18%—I’m more inclined to press for per-participant charges for recordkeeping.
  • 16%—I’m more inclined to pursue conducting RFPs at least every three years.
  • 8%—I’m more inclined to favor passive management alternatives.

Comments on this? Funny you should ask…

We include the trends as part of our best practices and many of these choices have been part of our client services for years.

The problem I see with per-participant RK charges is they tend to be high and make a big impact on new participant accounts. It would be nice to have an asset-based fee with a cap, or maybe switch to hard-dollar at a certain asset level. Is that out there anywhere?

I was already using passive funds, already doing fee benchmarking and monitoring share classes.

I have implemented best fiduciary practices since 2008.

Working with smaller plans, some still use revenue share to cover plan fees. I prefer non-revenue funds and an asset-based fee and do more education with my plan sponsors to get them moving in that direction when possible.

We have always acted in a fiduciary capacity so nothing for us has changed based on the litigation.

We have always reviewed fees of the investments, record keepers and our advisory services, used both passive and actively managed funds in the investment line up, and looked at the plan from a fiduciary perspective, there is no need to change.

We have always done regular RFPs, pressed for per-participants charges, emphasized low cost share classes and utilized passive funds when appropriate in our practice. What has changed is now more recordkeepers are willing to accommodate our requests especially with small to mid-sized plans.

Fee Transparency is often difficult to communicate to participants. Removing revenue sharing makes the conversation easier for everyone.

We’ve been moving our clients to an all zero rev share investment lineup and then decide how the fees are paid (sponsor, participant or both)…but having them be fully transparent.

We were ahead of the curve on fiduciary-based practices. We document, document, document for our files and on behalf other of the client. It’s about educating the client / committee on what’s available and helping them make an informed decision.

We have instituted fee benchmarking every three years for plan sponsors and have included an annual fiduciary checklist.

I have always looked for as much balance as possible between cost and performance for plans. We do not necessarily do an RFP every 3-5 years, but we do evaluate fees and lower them when appropriate to keep fees reasonable, usually reviewing every 2-4 years. RFP’s are done when we cannot get the record keeper to lower fees to maintain reasonable fees due to growth of account and/or service has suffered and the plan is not getting the help they need.

The main change is seeking out 3(16) and 3(38) providers to serve on the plan. Having the liability outsourced and monitoring service providers is vital with the increasing litigation.

Our process has changed in that we are focused on communicating what decisions are available and being made. We haven’t changed our practice as we were already aware of fees, ongoing platform monitoring and how our plans were charged. What we were not always doing was communicating what our process was to the plan sponsor on a consistent basis.

Not to come off as a ‘know it all,’ but I really have always done the above items and have always been in my practice. I’m aware of the litigation factors out there; some are justifiable and some are not. I’m glad to see Schlichter get sanctioned because they have reckless for years. Bottom line, you can always be sued for something, so it important to always document when, how, and why you are doing something in the plan. We are also in the small plan space with only a few over $15 million in assets.

I am more aware of lower share classes but heaven’s, the work in keeping up with it. Calvert went from A to Y to I and now to R-6 but not for all funds.

We’re doing all of those things listed above, but were doing them well before the surge in litigation.

I use the lowest cost share class as long as they are “clean” shares.

No option really targets what we do. We have a total approach to governance that includes having a current IPS – charter – potential fee policy or at least a fee philosophy – and based on total fees required to RK the plan find selection or manager changes are made.

We tell clients that regardless of what they do/choose, you can always be scrutinized. It’s important to discuss and document accordingly. Just because you pick all passive, does not eliminate potential legal action.

We’re more diligent about plan documentation.

We’ve implemented best practices with clients as each emerges, so the litigation doesn’t end up driving our service model. It’s the other way around, we implement the changes and then can point to the litigation as validation that what we’re doing is right.

Through meritorious fiduciary breach claims, the fiduciary standard of care applicable to retirement plans is being forced to conform more closely to trust law, from which the test of prudence emanates. Unfortunately, trial judges, who rarely if ever qualify as prudent experts themselves, often falter.

Plan Sponsor Perspectives

And then, regardless of cause, GENERALLY speaking—we asked readers how, if at all, has the attitude of their plan sponsor clients/prospects changed over the past two years (more than one could apply).

  • 54%—They’re aware of the litigation trends, but most haven’t changed positions on these things in the past two years.
  • 40%—They’re more inclined to want to pursue the use of lower cost share classes.
  • 25%—They’re more inclined to favor passive management alternatives.
  • 17%—They’re more inclined to pursue conducting RFPs at least every three years.
  • 8%—They’re more inclined to press for per-participant charges for recordkeeping.

I am 3(38) and take my fiduciary responsibility seriously. The participation rate has increased, the returns have increased and we monitor and provide quarterly and annual assessments of retirement readiness to each and every participant.

They really rely on me to tell them if their Plan is in line with current trends/responsibilities.

They are definitely more fee conscious across the board. I find benchmarking our plans; recordkeeper, advisor and funds, is important.

We review litigation trends in plan review meetings, and what their plan does to help mitigate risk.

I think they’re more inclined to benchmark the plan every few years.

Our job has become harder because often low cost outweighs fund quality and historical performance. I guess that’s what CFOs read and can relate to the most. The 401(k) industry – in my humble opinion – has really allowed too much focus on costs without a commensurate acknowledgement of services and quality that goes along with that cost. A $20k Kia hatchback will get me to the same destination as a $45k Lexus hatchback so why do people by the Lexus?

We try to keep our plans at the lowest overall cost already.

I believe fees and funds have been jammed down sponsors throat for so long they only look at fees now. We see many prospecting advisors still focusing on fees and providing proposals using low cost providers and all index funds. First of all, we believe any novice can put this together and there is no value to that solution. Secondly, we feel that the lowest cost solution is not always the best solution when it comes to retirement plans.

Plan sponsors aren’t focused on the nitty gritty like we are and rely on our guidance.

They ask about whether a passive option/options make sense more often than in past years.

Many times, plan sponsors just don’t know. So I think now that everything is more public and litigation has increased, plan sponsors have naturally become aware of some of the above items. I do see more shifting passive and lower TDF cost in many plans just to try to avoid a fee litigation suit.

Lower cost share classes should always be the default, regardless of how the fees are being paid and by whom (i.e. Plan Sponsor, Participant).

Many of my plans are smaller companies, including some recent “start up” plans. Cost is the biggest driver for them so we focus on low cost funds as much as possible. However, I also look at demographics because sometimes actively managed funds, including TDFs are as appropriate. What’s changed most over the past 2 years is fee compression so benchmarking RKs regularly is necessary. While 2 years isn’t a big window of time, 5 certainly would be. I like to have something in client files & meeting minutes showing I’ve at least had the discussion and decisions duly noted.

Most focused on their business and how their retirement plan operationally doesn’t get in the way. In other words, items noted above have already been dealt with. More difficult is data management and engagement of participants with the plan.

Other Observations

And while we got LOTS of interesting comments this week, we couldn’t close without offering readers an opportunity to provide additional comments about allegations, presumptions, changes in behavior, lack of changes in behaviors, evolving practices, consistent practices, the need for evolving practices, bad assumptions in litigation, or life in general…

I think litigation has exceeded its use value to participants and if it continues it will lead to less positive outcomes for retirement.

I hope the big plan lawsuits don’t roll too far downhill. I see Schlichter lined his pockets with another $13mm.

In general, my committees are more focused on plan participants than they were 3 years ago. maybe that’s because I have pushed them in that direction or maybe just it is a sign of the times.

Our practice focuses on $2mm to $50mm and it is rare that a plan sponsor is overly concerned with litigation. They are concerned and rightfully so with a value proposition that will give their employees positive outcomes.

I still find that the smaller plan market less than 300 employees, are not as well informed about fiduciary best practices.

The increase in litigation regarding plan costs and the implementation of disclosure requirement, clients are much more informed regarding where plan expense originate, what they are and if they are reasonable.

They’re also forming bigger committees and asking for fiduciary training.

Still too many employers have their plan with “their guy” who they play golf with, or went to high school with, or who they are related to…without the appropriate due diligence of evaluating and selecting an advisor for the appropriate reasons.

In every aspect of the court system and everyday life is that people need to take more responsibility for their own actions and the courts and government should stop being cowards about things.

If an advisor is honest and fair, and looks out for the best interest of the client and participants, they can maintain clients for many years. It is much easier to maintain the client than constantly trying to replace lost ones.

An all or nothing approach doesn’t work anywhere, even in plans. Maybe because I have always used active and passive in line-ups I do not see this come up with my plans much. It is frustrating though when other advisors come in to sell my plan sponsors on a lower cost line-up and it is all passive funds. They show these to me when they get them. At least so far they thank me for the education and know what they have on their plan so these sales techniques do not work on them. It is still annoying though and it is not the right thing for the plan or participants, it is simply to try to win the business.

Education of committees, HR teams and payroll teams has grown through the trend in litigations. Documentation has risen and there has been a consolidation in the vendors I work with that help support the client/plan and are true partners.

I’ve said this before and I will continue to say it: the interpretation of the MEP/PEP rule will change the landscape of the industry as different service providers aggregate different blocks of business.

Covid 19 has been a game changer for everything we do. We’re working harder, longer, and for less due to price compression. The world seems a lot darker right now.

I think that plan sponsors are becoming more and more comfortable with outsourcing of the retirement plan benefits. I think that PEPs and MEPs are going to take off for those that can articulate it.

Investment committees are trending to be more disciplined in meeting and reviewing their plans than in the past.

I think there is a need to evolve practices. I always have a base of what I believe in, however, our job is to guide the plan sponsor and their retirement plan for the betterment of the employer and plan participants. I’ve learned a one size fits all approach does not work. You have to adapt to properly service the retirement plan space.

I wish someone would look at why Schlichter does what he does.

The important thing is having a documented process around what you do and why- no right or wrong.

Simply having a continuous conversation throughout the year with the plan sponsor can help alleviate many issues, especially legal issues.

Litigation has inappropriately shifted plan sponsor focus to fees over all other factors, including investment returns net of fees.

The concept of fee equalization and using a system of debits/credits still seems to confuse many plan sponsors, as well as plan participants.

I just follow as many resources as I can to keep up on “trends” and best practices in an industry that’s evolved considerably over the last 5 years. Just look at the # of DOL/IRS notices/rules/procedures that have been issues in less than a year since SECURE/CARES Acts less than a year ago!

We keep emphasizing our ability to keep them in conformity with the 21 prudent fiduciary standards of care.

These class-action suits are an example of why the American Public dislikes lawyers. ERISA was designed to protect against the stupidity of making the landscape fraught with danger. Now, it seems, if you have a large plan, it is just a matter of when you will get sued. Not good for the retirement system (unless you are a litigator). Can’t wait for the litigator’s plan to get sued by their employees! I will laugh my butt off.