Document, Document, Document: Fee Policy Statement From Principal Helps Employers Evaluate Fees, Services

To help plan sponsors and their advisors get a better handle on retirement plan fees and how they're paid, Principal Financial Group ® has created a sample fee policy statement that provides an objective process for managing and allocating those fees.

"Recent regulations and fee litigation have certainly raised awareness of the need to closely monitor fees and services," said Greg Burrows, senior vice president of retirement and income solutions at Principal ®. "While there are many ways to go about that, we think using a fee policy statement helps simplify and streamline the documentation process."

The why and the whatUnder the Employee Retirement Income Security Act of 1974 (ERISA), plan fiduciaries must act prudently—like considering the interests of different participant classes and determining how the fee allocation method may affect them.

Similar to how an investment policy statement gives guidelines on the management of the plan's investment lineup, a fee policy statement shows there's a repeatable, documented process for evaluating the effect of fees on participants and a rational basis for the chosen approach.

"Plan fiduciaries should fulfill their responsibilities prudently—and have something to show for it," said Steve Saxon of Groom Law Group, who consulted with Principal on the sample statement. "A properly drafted fee policy statement is a valuable resource to help reflect the process for evaluating fees and expenses and show that the plan fiduciary understands their responsibilities."

For example, a fee policy statement could cover:
  • The plan's purpose
  • Fiduciary duties relating to the plan's payment of fees
  • Monitoring and evaluating whether fees are reasonable, including how and when fees will be reviewed
  • Fee collection method(s) and how they are evaluated
  • Communication of fees to participants

"Plan sponsors often look to their advisors for expertise in managing fees and services," Burrows said. "Helping them create a fee policy statement is an opportunity for advisors to further demonstrate their fiduciary support."

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