As I mentioned in my last video, the recent court case of Tibble v. Edison is something, that you as a plan sponsor fiduciary, need to understand because it pertains to the fees and expenses in your plan and what types of share class or mutual funds you have in that plan.
As a plan sponsor fiduciary, you have a duty of prudence and a duty of loyalty. You need to be loyal to your employees and make sure you do everything in their best interests. To do that, you need to have a process for monitoring the investments in your retirement plan and being prudent about that process.
With that in mind, I want to cover the fees and expenses in a retirement plan, primarily the hard dollar and soft dollar costs. You need to know:
- Who your service providers are.
- What services they provide .
- What services they provide.
- What are the fees they charge for their services (they can be both hard and soft dollar fees).
- Whether the fees are reasonable.
- Who’ acting as a fiduciary to your plan.
- Whether anyone has a conflict of interest in that process.
On page 66 and 67 in my book “Save America, Save!” I lay out what the hard dollar and soft dollar fees are in a retirement plan.
Hard dollar fees are typically fees you pay directly to your service providers. You could write a check to your third-party administrator (if you have one) and pay them an annual administration fee and maybe a participation fee for each person in the plan. You might write a check directly to your advisor, which you could deduct out of your corporation. You could also write a check to your record keeper. All of these hard dollar fees come out of the company’s pocket rather than the participant accounts.
Most plan sponsors may have all of those fees bundled and coming out of the mutual funds in the plan, or what’s known as a soft dollar fee. Soft dollar fees are when you pay your service providers indirectly from your mutual fund. This is where you can get into trouble, though, because soft dollar fees are a slippery slope and the reason why Tibble v. Edison ended up as a lawsuit.
Again, it’s important that you as a plan sponsor fiduciary understand all the fees in your retirement plan—both hard and soft—so you can make prudent decisions as to what’s in the best interests of your employees.
In my next video, I’ll delve into the variety of share classes you can choose from. In the meantime, if you have any questions about this topic or would like a free consultation for your investment plan, don’t hesitate to reach out to us. We’d love to help you.