62 PLANSPONSOR.com June 2017 Art by Joseph Ciardiello
So you’ve finally decided it’s time for a new recordkeeper. For the retirement plan committee, selecting a recordkeeper— really, all service providers for the plan—is an ongoing fiduciary duty. Here, we discuss these and other issues that should be
considered when selecting and monitoring your recordkeeper.
Benchmarking gives the committee a means to compare one
recordkeeper’s fees with those charged by other recordkeepers
for similar-sized plans and can be done in between requests for
proposals (RFPs). Often, the committee’s outside investment
adviser can help gather this information for the committee.
Note that, while you aren’t required to select the least expensive
recordkeeper, when benchmarking you should review all the
facts to determine that the fee is reasonable in relation to the
In considering the fee, how it is calculated is relevant. For
example, is the recordkeeper paid based on assets under management (AUM) or a fixed or per-participant fee? If based on AUM,
as plan assets grow, the recordkeeper’s fees also grow, yet it may
be providing no additional services that correlate to the increase.
By periodically reassessing the basis point charge on assets, the
committee can address this concern.
The committee should consider whether services offered meet
the plan’s needs, whether all services agreed upon in the contract
are being provided, and whether any of the services raise conflict
of interest issues. Recently, we’ve been seeing changes in recordkeeping services in response to the Department of Labor (DOL)
fiduciary rule. Many recordkeepers are altering their service
agreement to provide some advice services and to acknowledge
limited fiduciary status for certain services.
Having the recordkeeper act as a fiduciary and provide
participants with investment education and/or advice may seem
like a good thing, and maybe it is, but the committee must carefully determine whether adding, and maybe paying more for,
such services is prudent, rather than just rubberstamp what a
recordkeeper now offers.
In particular, the committee should consider and ask
for information regarding any conflicts of interest that may
exist in connection with providing investment advice to plan
participants. For example, the investment lineup for many plans
includes proprietary funds run by the recordkeeper or an affil-
iate. This is not necessarily a problem, but the committee should
understand how any recommendations work and whether there
is any conflict with respect to such funds.
Additionally, recordkeepers often seek to capture participants’ rollover accounts. It is important that the committee
understand what information the recordkeeper is providing
to a terminated participant regarding distribution options and
whether such information is supplied without creating a prohibited transaction, should the participant move his money to the
A hot button issue for the committee to consider is whether
the recordkeeper receives any revenue sharing—the additional
fees added to the expense ratio of a mutual fund—and, if
so, how it is handled. Many plans are moving toward having
revenue sharing reallocated back to the participants whose
accounts generated it. But not all recordkeepers can accommodate this process. That doesn’t mean you can’t select a recordkeeper that uses revenue sharing to offset fees or to create an
ERISA [Employee Retirement Income Security Act] expense
account, but it does mean the committee should understand
the specifics in either practice and consider that in its review
process of the recordkeeper.
Ultimately, as with any plan-related determination, when
selecting a recordkeeper, the committee must gather all the
information regarding the recordkeeping arrangement, review
that information and make an informed decision.
Then, on an ongoing basis, the committee must continue to
monitor the recordkeeper. This can be done by reviewing periodic
reports it submits, having a representative of the recordkeeper
attend a committee meeting to describe its activities, asking the
company’s benefits department to comment on its satisfaction
with the services provided, seeking guidance and information
from the plan’s outside consultant, and regularly benchmarking
the recordkeeper’s fees.
Summer Conley is a partner in the Los Angeles office of
Drinker Biddle and Reath LLP, and Michael Rosenbaum is a
partner in the firm’s Chicago office.
A plan committee’s fiduciary mandate