PLANSPONSOR - October/November 2021 - 38

FIDUCIARY FORUM
A Useful Gauge
Benchmarking can help sponsors meet their fiduciary duty to monitor
W
hen it comes to making chili in a slow cooker, " set it
and forget it " makes sense. When it comes to selecting
plan service providers, paid from the assets of an
employee benefit plan, that approach doesn't work as well.
Fiduciaries must act prudently when selecting service
providers, such as recordkeepers, investment managers, consultants,
etc. This is generally viewed as an ongoing fiduciary
responsibility-meaning the committee should periodically
determine if the service provider arrangement remains reasonable
for the plan. Fee litigation cases have suggested that this
requires plan committees to utilize their requests for proposals
(RFPs) to satisfy the fiduciary duty to prudently select and
monitor plan service providers.
While there is no bright line rule mandating RFPs or
regarding how often fiduciaries should perform them, an RFP
allows the committee to get a full understanding of the available
arrangements and facilitates a prudent selection and monitoring
process. Still, RFPs can be costly and time consuming so there
is little desire to do them too frequently. In the interim, a plan
committee may consider periodically benchmarking service
providers as a means to help satisfy the fiduciary obligation to
monitor, before conducting its next full RFP.
Benchmarking can enable a committee to compare the fees
that its plan is being charged with those that peer plans are being
charged by their provider. Seeing where its plan's current service
provider arrangement falls, relative to those other provider
arrangements, can help the plan committee make this reasonableness
determination. Keep in mind, however, that this doesn't
mean the fees being paid must be the lowest by comparison.
Nothing in the Employee Retirement Income Security Act
(ERISA) requires plan fiduciaries to select the cheapest service
provider. Similarly, it doesn't mean, if the fees are the most
expensive, that there's necessarily a problem. Rather, the service
provider's compensation must be reasonable for the services
provided. This includes both the quantity and the quality of the
services-how well they are performed may justify fees that
otherwise might seem on the high side.
When comparing service providers and determining reasonableness
through the benchmarking process, it is helpful to make
sure the benchmarking report looks at arrangements for peer
plans so the plan committee is comparing apples with apples
without a stray lemon skewing the review. As a starting point,
this means comparing the existing arrangement with service
provider arrangements for plans that have a similar number of
participants and asset size. It also means comparing providers
that furnish the same, or substantially the same, services.
To consider all of the provided services and all of the
compensation can be especially important in the recordkeeping
context. More and more, we see recordkeepers supplying additional
services beyond the
expected. For example,
many offer managed account
services, as well as qualifieddomest
ic-relat ions- order
(QDRO) and loan-processing
services. Some of the fees for
such services may be paid
by plan participants rather
than the plan but still affect
the reasonableness of the
arrangement and should
be considered as part of the
committee's monitoring.
While there's nothing wrong
with having the recordkeeper
provide these services or
Nothing
in ERISA
requires plan
fiduciaries
to select the
cheapest
service
provider.
receive compensation for them, it is information the committee
should consider when determining the arrangement's reasonableness.
Also to keep in mind when benchmarking recordkeepers
is whether the provider has proprietary investment
options in the plan and whether it has an individual retirement
account (IRA) offering for rollovers.
Benchmarking won't necessarily replace holding a full
RFP; however, conducting a benchmarking review on a regular
basis between RFPs can help give a committee enough information
to determine the reasonableness of the plan's service
provider arrangements. Either way, it would be beneficial for the
committee to document, in its meeting minutes, the processes it
followed and the reasons for its decision to engage/remain with
particular service providers.
Summer Conley is a partner in the Los Angeles office of Faegre
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner in
the firm's Chicago office.
38 PLANSPONSOR.COM October - November 2021 Art by Joseph Ciardiello
http://www.PLANSPONSOR.COM
PLANSPONSOR - October/November 2021

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