The challenge for plan sponsors is to distinguish between whichfees add value and which fees can be cut. We certainly don’t wantto reduce fees in such a manner that would reduce the effectivenessof a retirement savings plan.

For example, one way to reduce fees is to reduce mutual fundexpense ratios by offering only index funds (whose expense ratiosare typically, but not always, a tenth of that of actively managedfunds). Sounds like a no-brainer, right? Well, in the first decadeof this century (the so-called “lost decade”), index funds wereflat – gaining or losing a little depending on which index youchose. On the other hand, the average actively managed fund,according to Lipper, grew substantially, in some cases by more than50 percent.

So, a low fee won’t help if the value isn’t there. (It’sinteresting to note that, in a press conference earlier this year,the DOL went out of its way to point out low fees do not mean lowerexpense ratios.)

In a 2010 report, the ICI identified five ways 401(k) plansponsors can help lower per-participant fees. Let’s review those interms of the impact of fee disclosure.

Focus on the competition among all investment products,including mutual funds, to offer 401(k) participants service andperformance. Some products that appeared attractive might no longerseem so.

The decision by plan sponsors to pay out-of-pocket for at leastsome portion of the costs of 401(k) plans. This alternative allowsplan sponsors to consider other options without bundled fees, andthese might, in the end, cost less.

Larger 401(k) plans have economies-of-scale advantages. Thispermits them to purchase lower cost share classes. But not alllower cost share classes are the same. Sometimes different shareclasses merely have different fee make-ups, not lower fees ingeneral.

401(k) plan sponsors must dedicate themselves to proactivelymake cost-conscious and performance conscious decisions. Thismeans, as the DOL desires, not just looking for the lowest fee, butlooking for the most value-added fee. It could very well be thehighest cost provider offers the best service, and that’s who theplan sponsor should pick.

Outsource, outsource, outsource. Why pay the overhead associatedwith a permanent employee when 401k plan sponsors have the abilityto delegate at least a portion of their fiduciary liability toprofessional investment advisers. Ah, but here the trick is todetermine what service providers qualify as such. The UniformPrudent Investor Act has much to say on this, and what is says, inessence, is that a professional investment adviser must be afiduciary.

As always, there are caveat emptors whenever dealing with buyingany product or service. Its best if 401(k) plan sponsors live bythis simple creed: When it comes to fee, sometimes you get what youpay for.

If you’re looking to reduce fiduciary liability, that’snot always a good thing.