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Reviewing Provider Fees and Services Integral to Fiduciary’s Responsibility

Reviewing Provider Fees and Services Integral to Fiduciary’s ResponsibilityLast year it came to light that several prominent universities, including MIT, Yale, NYU, and Emory, were facing lawsuits by their employees alleging their retirement programs were being slammed with excessive fees along with other fiduciary breaches. Knowing that a plan is being reasonably priced is a vital fiduciary duty, whether you are providing employees with a 401(k)-type plan or a benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). It’s not enough to just shop around. Fiduciaries should also be questioning whether the fees are in line with the services offered by the plan provider.

Following are steps to help you in your fiduciary capacity in benchmarking costs and services from plan providers:

  • Ask for updated information from your provider. The original information you received from your provider when choosing a plan may be outdated. Be sure to get a copy of the latest general information describing the provider’s qualifications and all fees. Note: Any changes in plan fees are required to be disclosed to the plan in advance of the changes.
  • Evaluate cost and performance data of your plan. Be sure to reread the fine print on your current service agreements and reconcile it to services rendered to determine if there are any gaps. Look for these gaps in routine services and in contingencies. For instance, how much liability does your administrator assume for any errors? What are the provider’s backup capabilities in the event of some kind of disaster? Understanding your service agreements will better help you assess your plan fees.
  • Collect and assess comparative data. For ERISA compliance, send out RFPs to other vendors, as well to obtain an apples-to-apples comparison of what you are paying for the services you receive. If your plan is relatively small and your request form is lengthy, you may have difficulty getting many service providers eager to go through the RFP process an, as a result, may not have sufficient amount of data for adequate benchmarking. Consider calling a few of the large vendors to discuss the fees they charge to establish a starting point on where your plan fees stand in comparison to the marketplace.

Also, consider hiring a professional benchmarking service that provides you with data to help make a thorough comparison, especially if you don’t have the capability to do so in-house. In selecting a firm, look at the technical qualifications of the firm’s principals and the length of time the company has been in business. Find out the scope of the service provider’s analysis and how much of the firm’s analysis focuses on individual fee components, as opposed to the overall fee structure by service category. Also, find out if the firm obtains fee data directly from the service providers, or through a third-party data provider and the type of quality control procedures in place to ensure the data’s accuracy.

Equally important is having Fiduciary Liability insurance in place to protect your business assets and those employees engaged in fiduciary roles against fiduciary-related claims of mismanagement of a company’s benefit plans. There a number of claims that could be covered including administrative error, wrongful termination of a plan, conflict of interest, failure to adequately fund a plan, denial or change of benefits, and improper advice or counsel.

Axis Insurance Services, specialists in management liability insurance, is available to review your existing Fiduciary Liability insurance program as well as offer you our custom solutions to meet your specific needs. Just give us a call at (877) 787-5258 to speak with one of our insurance professionals.

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Blogged on: April 28, 2017 by Mike Smith

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