I remember as a kid that there was a move to use margarine because of the cholesterol that was in butter. Who can forget those talking Parkay carton commercials? Of course, we later learn that many margarines had high amounts of trans fats, which is just as bad as cholesterol. For the past 45 years, we’re still having a similar debate with sugar vs. artificial sweeteners.
In the retirement plan business, we don’t deal with margarine and NutraSweet, but we have been talking a lot about fees. Plan administration fees have been the talk of the retirement plan business for the past 10 years and continued focus thank to the fee disclosure regulations put forth by the Department of Labor. The obsession about fees can be a problem when the discussion about selecting and or replacing plan providers is based solely on fees. Fees are really about reasonableness and paying reasonable plan expenses for the services provided. It’s not about picking the cheapest provider.
Focusing too much on fees means there is less focus on finding the right providers and a good chunk of the time, the best provider candidate for the plan isn’t the cheapest. I see to often, plan sponsors picking a cheap third party administrator that is short on competence, which leads to higher compliances costs later when penalties are tacked on for incompetent administration.
Fees should always be a concern but focusing too much on fees is like eating margarine with high trans fat because it’s as unhealthy as butter without the taste.