Fee disclosure is only one piece of the fee puzzle

While some may claim that fee disclosure that will come for retirement plan sponsors on April 1, 2012 from Section 408(b)(2) regulations will be a breath of fresh air for the retirement plan industry, the cynics in me will say that it will have very little effect. The reason? It’s useless if the plan sponsor doesn’t benchmark the fees they are charged.

A plan provider can still include inflated charges like a custody fee on steroids of 20 basis points with the hope that plan sponsors will accept those fees as a grain of salt since most plan sponsors won’t exercise their fiduciary duty by benchmarking their fees.

Fee disclosures will tell plan sponsors what their fees, but it won’t tell them whether the fees are reasonable or whether they are reasonable for the services provided. Disclosure is only on piece of the puzzle, it’s up to the plan sponsor to figure out the rest of the puzzle on their own.

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