Many plan sponsors believe fee benchmarking is simply a search for the lowest-cost provider. That approach misses the point.
Fee benchmarking is not about finding the cheapest retirement plan. It is about demonstrating a prudent fiduciary process.
ERISA fiduciaries have a duty to ensure that plan fees are reasonable in relation to the services provided. The law does not require sponsors to select the lowest-cost provider available. Instead, it requires fiduciaries to understand what they are paying for and determine whether those costs are reasonable.
A provider charging more may offer additional services, stronger participant support, enhanced cybersecurity protections, improved compliance assistance, or greater operational expertise. Those services may justify higher fees.
The real value of fee benchmarking is that it provides information necessary for informed decision-making. It allows fiduciaries to compare fees, services, and capabilities across the marketplace. It also creates documentation demonstrating that the committee reviewed and evaluated costs on a regular basis.
Unfortunately, some sponsors focus exclusively on price. A low-cost arrangement that produces operational problems, participant complaints, or compliance failures can become far more expensive than a higher-priced provider that delivers reliable service.
The question should never be, “Are we paying the least?” The better question is, “Are we receiving reasonable value for what we are paying?”
When regulators review a retirement plan, they are often interested in the process used to evaluate fees. A documented benchmarking review helps demonstrate that fiduciaries fulfilled their oversight responsibilities.
Good fiduciary governance is not about chasing the lowest number. It is about making informed decisions based on facts, services, and participant needs.
That is why fee benchmarking is ultimately about process, not price.