Navigating fiduciary responsibility in the era of fee compression: the imperative of due diligence in retirement plan management

Executive summary

In an era marked by fee compression and increased scrutiny of retirement plan management, fiduciaries face heightened responsibilities to ensure the financial well-being of retirement plan participants. This insight explores the evolving landscape of retirement plan fiduciary duties, the impact of fee compression on plan costs and the imperative of conducting thorough due diligence to navigate vendor relationships effectively. The article also explores case studies of two institutional clients, a hospital and school district. Through these examples, we illustrate the tangible benefits of proactive plan review and optimization to enhance participant outcomes and align retirement programs with organizational objectives.

Introduction

Fiduciaries are legally and ethically required to act in the best interest of their clients. As stewards of retirement plans, these fiduciaries bear the responsibility of acting in the best interests of plan participants. In today's environment, characterized by fee compression and commoditization of retirement plan services, fiduciaries must navigate a complex landscape to ensure the delivery of cost-effective, efficient and compliant retirement benefits.

Understanding fee compression and homogeneous products

Within the retirement plan industry, the commoditization of recordkeeping services has led to the phenomenon known as fee compression. Recordkeepers and auditors tend to be viewed similarly when comparing their offerings. As a result, they compete primarily on pricing and fees, driving down costs, but potentially sacrificing quality and value in the process. This commoditization poses challenges for fiduciaries, who are tasked with selecting and monitoring vendor relationships to safeguard participant interests.

The fiduciary imperative: conducting due diligence

Fiduciaries are bound by law to act prudently and solely in the interests of plan participants. Central to fulfilling this duty is the rigorous due diligence of vendor relationships. This includes recordkeepers, investment managers and advisors. Due diligence serves as a critical safeguard against potential conflicts of interest, hidden fees and subpar service quality. Thereby, due diligence mitigates fiduciary risk and ensures the delivery of optimal retirement benefits.

Case studies: optimizing retirement plans for institutional clients

Hospital 403(b) plan optimization: Through a comprehensive plan review, our institutional retirement consulting team identified opportunities to reduce the hospital's annual recordkeeping fees. Fees were reduced by $350,000 while enhancing plan design efficiencies. By conducting thorough due diligence and negotiating vendor contracts, we delivered tangible cost savings and improved participant outcomes. These benefits enabled us to align the retirement program with the hospital's business objectives.

School district 403(b) plan enhancement: Similarly, our team conducted a thorough analysis of the school district's 403(b) plan. Our analysis resulted in annual recordkeeping fee reductions of $260,000 and significant plan design efficiencies. Our team prioritized fiduciary responsibility and conducted due diligence on vendor relationships. We ensured compliance with recent legislation and created a retirement program that better serves the needs of plan participants and aligns with the school district's strategic goals.

Conclusion

Fiduciaries must remain vigilant in fulfilling their obligations to plan participants by conducting regular due diligence on retirement plan vendors. Organizations can optimize retirement plan management, deliver cost-effective benefits and enhance participant outcomes. They accomplish this by prioritizing fee compression, fiduciary responsibility and addressing homogeneous product offerings. Through proactive engagement and strategic partnerships with experienced retirement consultants, fiduciaries can navigate the complexities of the retirement landscape with confidence and integrity.

How Baker Tilly Wealth Management approaches plan review and analysis

Ready to elevate your retirement plan with our comprehensive review process, tailored to ensure your strategy remains competitive in today’s dynamic market? Specializing in cost reduction and offering personalized recommendations, our retirement consulting team focuses on enhancing plan design, fiduciary governance, investment oversight and participant education. Our proven experience in improving plan oversight allows sponsors to feel confident and in control, making the plan a valuable asset for both the organization and its employees.

What can you expect? After a review of your plan, we can assist in identifying efficiencies to free up time for business leadership and employees. Specifically, our analysis can provide recommendations related to:

• Lowering fees for the plan and its participants
• Plan enhancements to help achieve critical business objectives
• A sound fiduciary process to help solidify plan governance and mitigate fiduciary risk
• An increase in financial wellness for your plan participants

Ready to learn more? Contact us.

Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. Information presented herein is for informational purposes only and should not be considered a solicitation to buy or sell any security. Investing in the market involves gains and losses and may not be suitable for all investors. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Baker Tilly Wealth Management, LLC is controlled by Baker Tilly US, LLP. Baker Tilly US, LLP, is an independently owned and managed member of Baker Tilly International. © 2024 Baker Tilly Wealth Management, LLC