PLANSPONSOR - February/March 2020 - 18

COVER STORY | THE CASE FOR A PROCESS
some sponsors have an issue with a per-participant fee, because
participants with smaller balances pay a higher fee proportionately,
he says. On the flip side, some sponsors see an asset-based
fee as less equitable, because higher-balance participants can pay
a much higher fee for the same administrative services.
" When we do a recordkeeper search for a client, we say to
the recordkeepers, 'Tell us what the fee would be on an asset
basis, and a per-participant basis, " Allen says. Then Cammack
analyzes how each option would affect the participant base, and
the sponsor weighs the choices and decides.
There is some evidence that doing this analysis can help
legally, Allen says, pointing to the Sacerdote v. New York University
lawsuit's challenge of asset-based fees by plaintiffs. The judge
sided with the defense because it demonstrated it had previously
sought both kinds of recordkeeper bids, then debated the merits
of asset-based fees vs. per-participant fees. The judge's July 2018
ruling found entirely in favor of the defendants, he says, adding
that the case is under appeal.
Keep a steady eye on the recordkeeper market. A number
of lawsuits challenging recordkeeping fees have alleged that the
plan's sponsor did not go to market and get competitive bids
often enough, Allen says. He says defendants have had mixed
results in these cases, but there have been some defense victories,
including Sacerdote. During the trial, the defense presented
evidence that NYU conducted multiple RFPs and competitive
bidding processes, which resulted in getting lower fees.
The Department of Labor (DOL) requires that sponsors offer
a competitive retirement plan, Allen says, and this has led some
to suggest that plans do an RFP every three to five years. " There
is no requirement for conducting an RFP at all, let alone that
frequently, " he says. " But it's a good tool for understanding exactly
what your costs should be and a great way to get your provider to
give you more attention. "
There is no one-size-fits-all answer on RFP timing,
Oringer says. " It depends on your level of satisfaction with your
current recordkeeper and the 'noise' in the marketplace as to
what's out there as alternatives. The idea is to remember that
this is an important issue and to have an introspective view of
whether you as a committee have your arms around what you're
getting from your recordkeeper now, and what else you could
be getting in the marketplace. "
To effectively monitor recordkeeping presents a challenge for
sponsors, says Julie Stapel, a partner in Morgan, Lewis & Bockius
LLP in Chicago: It is such a driver of fees in 401(k) plans, but it is
also enormously complicated to change recordkeepers. " It can be a
year-long, wrenching process, " says Stapel, an ERISA attorney who
advises plan sponsors. Before taking that step, " we recommend
having an ongoing dialogue with your existing recordkeeper about
how you can get more efficiencies and lower fees. "
It is important to benchmark fees annually, Itzoe says. " If
you're getting good service from your current recordkeeper, you
TDFS: THE TICKING TIME BOMB
CAROL Buckmann, a founding partner in
Cohen & Buckmann in New York City, calls
target-date funds (TDFs) the " ticking time
bomb " of Employee Retirement Income
Security Act (ERISA) litigation. " I think
there's going to be an increase in suits
involving target-date funds, as plaintiffs'
lawyers look for new targets, " says Buckmann,
an ERISA attorney who counsels
plan sponsors on fiduciary best practices.
" There is often a lack of understanding
among plan fiduciaries of how these funds
work and how they're very different from
each other. " She cites a suit filed this past
August against Walgreen Co., alleging that
its 401(k) plan's fiduciaries imprudently
kept a family of poorly performing TDFs.
" The Walgreens complaint should be a
wake-up call for plan fiduciaries, " she says.
18 PLANSPONSOR.COM February - March 2020
(Walgreens moved to dismiss the case, but
there had been no reported decision.)
Greenspring Advisors' Josh Itzoe
calls the decision about which target-date
funds to utilize " the single most important
investment decision facing our generation
of fiduciaries, " especially as so many
plans utilize TDFs as their default investment
for automatic enrollment. He says
plan sponsors can get more familiar with
how to prudently select and monitor these
funds by reviewing the steps the Department
of Labor (DOL) recommended in
its February 2013 three-page publication
" Target Date Retirement Funds: Tips for
ERISA Plan Fiduciaries. "
Sources say plan sponsors should
consider following these four steps to
risk mitigation:
Understand the glide path's risks. The glide
path's emphasis on equity vs. fixed income
still differs between providers, Buckmann
says. " Some funds have substantial
amounts of equity into retirement,
for example, and others are more focused
on fixed income in retirement. " A TDF
reporting higher returns in an upmarket
may be performing better because its glide
path has a more aggressive allocation to
equity. That may pose risks in a downturn.
This is an area where a committee
often needs an adviser's help, says Julie
Stapel of Morgan, Lewis & Bockius. An
adviser can run " stress testing " that illustrates
for the committee how different
TDF families would perform in hypothetical
conditions such as a major market
decline or the return of high inflation.
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