How Should Plan Sponsors Benchmark Retirement Plan Fees?

The Short Answer

Benchmarking retirement plan fees means comparing the costs your plan and its participants pay, for recordkeeping, administration, investment management, and advisory services, with those of similar plans receiving similar services. Because ERISA requires fiduciaries to ensure fees are reasonable, periodic benchmarking provides an objective, documented basis for that determination. Many plan sponsors benchmark fees every few years, with a formal request for proposal (RFP) on a longer cycle or when significant changes occur.

Why Is Fee Benchmarking Important?

Fees directly reduce participants’ retirement savings, and even small differences can compound meaningfully over a career. ERISA does not require plans to choose the lowest-cost provider, but it does require fiduciaries to understand fees, evaluate them against the services provided, and determine that they are reasonable.

Excessive fee litigation has made this process especially important. Courts have emphasized that fiduciaries are judged largely on the prudence of their process. Regular benchmarking, with documented review and follow-up, is one of the clearest ways to demonstrate that process.

What Fees Should Be Benchmarked?

Recordkeeping and Administrative Fees

These cover services such as participant recordkeeping, statements, call centers, websites, compliance testing, and Form 5500 preparation. They may be charged as a flat per-participant fee, an asset-based fee, revenue sharing from plan investments, or a combination.

Investment Management Fees

These are the expense ratios of the plan’s investment options. Benchmarking should consider whether the plan is using the lowest-cost share class available and whether alternatives such as collective investment trusts may be appropriate.

Advisory and Consulting Fees

Fees paid to investment advisers or consultants should be evaluated relative to the scope of services, including whether the adviser serves as a fiduciary.

Other Fees

Transaction fees for loans and distributions, trustee or custodial fees, and audit fees should also be understood.

Where Does the Information Come From?

Service providers are required under ERISA Section 408(b)(2) to disclose their services and compensation to plan fiduciaries. These disclosures are the starting point for understanding what the plan pays, including indirect compensation such as revenue sharing. Participant fee disclosures under ERISA’s 404a-5 regulation show what participants see.

How Is Benchmarking Done?

Common approaches include:

• Benchmarking databases and reports: Third-party services compare a plan’s fees with peer plans of similar size and complexity.
• Request for information or proposal: Soliciting proposals from multiple providers gives a market-based comparison and may lead to renegotiation or a change in provider.
• Adviser-led reviews: Retirement plan consultants often conduct periodic fee reviews as part of their services.

Effective benchmarking compares services as well as price. A lower-cost provider may offer fewer services or weaker participant support, so the analysis should consider value, not just cost.

What Should Sponsors Do With the Results?

If fees are within a reasonable range for the services provided, document the review and conclusion. If fees appear high, sponsors may negotiate with current providers, move to lower-cost share classes, restructure revenue sharing, or conduct an RFP. Some plans adopt fee levelization or a per-participant fee approach to allocate costs more equitably; Newport has written about fee levelization and its considerations.

Whatever the outcome, record the process, the information reviewed, and the rationale for the decision in committee minutes.

How Often Should Fees Be Benchmarked?

There is no specific legal requirement, but many plans benchmark every two to three years and conduct a formal RFP every three to five years, or sooner if the plan’s assets, participant count, or service needs change significantly.

The Takeaway

Fee benchmarking is a practical way for plan sponsors to fulfill their duty to ensure reasonable fees and to demonstrate a prudent process. Regular, documented reviews help protect participants and fiduciaries alike. As a 3(21) and 3(38) fiduciary partner, Newport’s institutional team works with plan sponsors to help ensure plan fees are reasonable and to establish a formal review process.

This article is provided for educational purposes only and is not individualized investment, tax, or legal advice. Please consult qualified professionals about your specific circumstances and review our disclosures.