PLAN EXPENSES

Most 401(k) plan sponsors have become accustomed to performing a due diligence review of plan expenses every one to five years.  This review is done primarily because ERISA provides that qualified retirement plans are solely for the benefit of the participants and that plan expenses must be reasonable.  The review also helps ensure that fees as well as the supplementary tools provided are competitive with the marketplace. 

Since expenses for most ESOPs are paid outside of the plan, fees are typically not reviewed as closely.  However, a due diligence review would still be beneficial.  Are the fees that you are paying reasonable?  Are they competitive in the marketplace?  While it is important to have competent ESOP advisors who you trust, does the cost of using the advisors exceed the benefits that you are receiving?  A thorough analysis, which may or may not include obtaining proposals from other firms, could result in lower fees or more included services, and you may not even have to switch advisors to obtain this adjustment. 

It is also important to make sure that you are comparing apples to apples.  I am sure you have heard that cliché before, but it is definitely relevant with plan expenses.  Some advisors charge one fee for all the services you will need, while others charge for each service separately.  When you are comparing the overall cost, it is important to make sure you are using the total cost for a particular time period (usually one year).  To make things easier for your due diligence review, you should request that all advisors provide you with a specific and detailed estimate of what the total expenses would be for one year.

Some advisors will also bundle into their fees services you do not need or can easily process in-house.  You should not hesitate to request a separate quote based on removing functions that you do not need or could process in-house.  You may discover that you can significantly reduce your overall fees (and may even improve your advisor’s profitability, a win-win for both parties).  At a minimum, you will get a good idea of the flexibility of the advisor.

In addition to price, here are some other factors to consider:

• Quality of service (How often are mistakes made, how are mistakes handled?) 
• Timeliness of service (Do you get your deliverables when you want them?  How persistent do you need to be to get your deliverables on time?) 
• Technology (Do you get reports, statements, and other information in the form and format that you desire?) 
• The advisor’s background and experience with ESOPs of similar size and complexity 
• Your relationship with the advisor (Sometimes you cannot put a price tag on trust.)

PLAN DOCUMENTS AND DISCLOSURES

DISTRIBUTIONS