What standard applies when determining whether retirement plan fees are appropriate?
Under the Employee Retirement Income Security Act of 1974 (ERISA), retirement plan fiduciaries must ensure that fees paid from the plan are reasonable in light of the services being rendered. Attaining fee reasonableness does not require choosing the service provider with the lowest fee service proposal.
While the recipe for meeting the reasonableness standard is not expressly finite, demonstrating certain highly encouraged best practices has been known to satisfy Department of Labor inquiries on the topic.
Mutual funds are often offered in a hierarchy of share classes assigned according to factors such as amount of assets invested in the fund. Sometimes, investing higher dollar amounts in a fund allows for lower cost share class qualification. Plan fiduciaries must consider elements such as overall plan cost and available revenue sharing before determining the appropriate share class. What is most important for plan fiduciaries here and with regard to fee reasonableness determinations generally is the ability to demonstrate a prudent (i.e. disciplined and diligent) process under which the issue was evaluated.