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:

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