How plan sponsors can evaluate fees without increasing fiduciary risk
Every retirement plan committee wants to be a good steward of plan assets.
That often starts with one goal:
Lower fees.
Benchmarking has become a standard fiduciary practice, and for good reason. Participants shouldn’t pay unreasonable expenses simply because no one asked questions.
But somewhere along the way, many committees began equating lowest fees with best fiduciary decision.
Those aren’t always the same thing.
Sometimes the lowest-priced proposal removes services, introduces conflicts of interest, or shifts important responsibilities back onto the employer.
That’s where the fiduciary red line begins.
Why Lower Fees Aren’t Automatically Better
Lower fees aren’t inherently bad.
In fact, many providers have become more efficient, using technology to reduce costs while maintaining excellent service.
The problem arises when committees evaluate providers based on price alone.
Every service provider still has to operate a profitable business.
If fees decrease significantly, it’s worth asking:
- What services changed?
- What work now falls on the employer?
- Are there new conflicts of interest?
- Are participants receiving the same level of support?
The goal isn’t simply spending less.
The goal is receiving appropriate value for reasonable fees.
What Doesn’t Show Up on a Fee Comparison Spreadsheet?
One of the biggest challenges with provider comparisons is that most spreadsheets focus on costs rather than services.
Two providers may appear nearly identical on paper while delivering very different experiences.
Some differences include:
- Internal quality review before annual filings
- Participant education resources
- Administrative support
- Compliance review
- Response times
- Dedicated relationship managers
- Fiduciary expertise
Those services don’t always appear as line items.
But they absolutely affect plan administration.
Hidden Costs Can Be More Expensive Than Higher Fees
Sometimes lower pricing is offset elsewhere.
Examples include:
Proprietary Investments
Some providers reduce administrative fees if you use proprietary investment options.
While these arrangements aren’t necessarily inappropriate, committees should understand exactly how pricing changes if those investments are removed.
Managed Account Requirements
Certain proposals offer attractive pricing but require managed accounts or proprietary target date funds as the plan’s default investment.
Understanding these tradeoffs is part of prudent fiduciary oversight.
Do-It-Yourself Administration
Technology has made many processes faster.
That’s a good thing. However, convenience should never replace professional review.
If your provider asks your HR team to upload census data and simply press a button for compliance testing, consider what’s happening behind the scenes.
Who’s interpreting the plan document?
Who’s reviewing excluded employee classes?
Who’s checking for errors?
Those responsibilities don’t disappear simply because software exists.
Questions Every Committee Should Ask
Before choosing a provider based primarily on price, ask:
✓ What services are included?
✓ What services are no longer included?
✓ Who performs compliance testing?
✓ Is there an internal review process?
✓ Are proprietary investments required?
✓ How does pricing change if those investments are removed?
✓ How will fees change as our plan grows?
These conversations often reveal far more than a fee schedule alone.
The Fiduciary Standard Isn’t “Cheapest”
ERISA doesn’t require plan sponsors to choose the lowest-cost provider.
It requires fiduciaries to ensure fees are reasonable for the services being provided.
That’s an important distinction.
A provider charging slightly more while delivering stronger oversight, better participant support, and higher-quality administration may ultimately provide greater value—and reduce fiduciary risk.
Lower fees should always prompt a question, not automatically end the conversation.
Good fiduciaries don’t simply negotiate lower prices.
They understand exactly what they’re buying.
Because the cheapest retirement plan isn’t always the best value.
Continue the Conversation
Want to hear the discussion behind this article?
Listen to Season 5, Episode 4 of the Wise Fiduciary Podcast, where Marta Hurst explores when fee compression becomes a fiduciary red flag and what every retirement plan committee should know before choosing the lowest-priced provider.