Los Angeles partner Fred Reish was quoted in an Investment News article, titled, “Wrangling Costs; A fee policy statement spells out the dollar allocation and gives advisers a competitive edge.” 

The fee policy statement is a document that discusses how fees are to be allocated among all the players within a 401(k) plan.  Financial advisors who are looking to distinguish themselves from competitors are helping to educate workers. 

Fred noted that “a fee policy statement focuses plan fiduciaries on the need to evaluate the fees being charged.  It’s not so much what the fee policy says in writing but the explanation that the consultant gives when it’s brought to the table and how it’s applied going forward.

Plan sponsors want to understand the details of the fees and use any leverage the information provides. ERISA experts warn that improperly drafted statements can present a litigation target.

Fred also noted that, “fee policy statements can be considered documentation that governs the operation of the plan, so failure to follow a statement can be a fiduciary breach.  The solution: Allow the statements to give plan fiduciaries a little bit of slack.”

He continued, “The statements ought to clearly state that they are merely guidelines.  Documents should say that the plan sponsor will obtain and review information from service providers on the compensation they receive and that the costs will be reviewed against market data.  Once it’s in place, every year, the plan committee should review it, even if these are just guidelines.”