Understand plan fees and expenses

While some expenses are one-time costs associated with establishing the plan, other expenses are ongoing operational and administrative expenses. It’s important that you have a clear understanding of all the fees associated with your plan, and that those fees are properly disclosed to your employees. Plan fees are typically summarized in individual contracts and administrative services agreements established with each provider supplying services to the plan, and each of these documents should undergo periodic review. Fiduciaries also need to know which expenses may be paid from plan assets in order to properly manage the overall cost of this critical employee benefit, and which expenses mandatorily need to be paid directly by the plan’s sponsor.

The DOL separates qualified plan-related expenses into two categories:

• “Settlor expenses” are costs that relate to the formation, rather than the management of plans. In general, settlor expenses arise from voluntary activities relating to the establishment, design and termination of a plan and they must be paid by the employer rather than the plan
• “Plan expenses” are reasonable and necessary administrative costs that are connected with the ongoing operation of the plan for the benefit of the plan’s participants. They may be paid by the plan, as long as their payment is permitted under the terms of the plan document

This document provides additional information on settlor and administrative expenses.

Understanding fees is especially important in selecting and monitoring service providers associated with the plan. ERISA section 408(b)(2) requires that fiduciaries act solely in the interest of plan participants when selecting and monitoring service providers and investments. Fiduciaries must also act for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. To fulfill these responsibilities and make informed decisions, plan fiduciaries must ensure they receive complete and accurate information from their service providers. The 408(b)(2) rules require plan providers to describe to plan sponsors the services they provide and the fees associated with those services. The plan sponsor, in turn, must review this information to determine that fees and services are necessary and reasonable

Prudential can assist plan fiduciaries with fee disclosure obligations in a number of ways. We provide point of sale Plan Level Fee Disclosure to satisfy 408(b)(2) rules annually, as well as any time there are changes to services or fees. Our disclosure is posted on the Plan Sponsor Website to ensure plan fiduciaries always have access to the most current fee information. We can also provide annual Benchmark Reports. Created by an objective third-party vendor, these reports can assist you in determining the “reasonableness” of plan fees by comparing your plan to similar plans.

Our Plan Sponsor’s User Guide provides an overview of our disclosure requirements and available delivery processes.