Benefits departments need to come up with a set plan on how to respond to plan participants when they ask about their 401(k) plan's fees, according to Osler, Hoskin & Harcourt LLP.

According to the business law firm, fee disclosure regulations, which have now gone out to both plan sponsors and 401(k) plan participants, have caused some people to challenge their benefits departments. To meet these challenges, plan fiduciaries need to follow six simple rules for how they respond to participant questions about their fees.

  1. They need to educate themselves about the different types of 401(k) plan fees, including investment costs, trustee or custodial expenses, transaction costs such as commissions and administrative and record-keeping fees.
  2. The law firm also recommends companies compare their plan against other plans of the same size so they can respond to questions asking why the plan is so expensive.
  3. Companies should take this opportunity to review their investment line up for performance relative to the fees they are paying. If the fees are too high, now is the time to go shopping. Keep in mind that some plans pay extra for better service, like access to a financial advisor.
  4. Diversification is key. Make sure your menu includes retail, index and institutional class shares to lower investment costs.
  5. The law firm also recommends that plan sponsors examine their revenue sharing arrangements with a critical eye. Many don't realize that expenses paid through revenue sharing are actually being paid by the participants. Make sure you have picked the best investments for them, not the funds that pay the most revenue sharing and therefore limit your plan sponsor responsibility for fees.
  6. Also, Osler, Hoskin & Harcourt recommend that companies look into new vendors. Put out a request for proposals to see if better alternatives are available.

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