For nearly 40 years, ERISA has required retirement plan fiduciaries to ensure the reasonableness of service and investment fees paid by the plan. However, fee reasonableness has only recently grabbed headline attention due largely to the finalization of the 408(b)(2) regulations and the Missouri district court's decision in Tussey v. ABB, Inc. Despite the strength of its fee reasonableness standard, ERISA provides little practical guidance as to how and when plan fiduciaries should be making and documenting their fee reasonableness determinations. In this presentation, we provide a historical overview of the legislative, regulatory and judicial context surrounding this fundamental fiduciary duty; a look at recent Department of Labor regulatory examination activity centered on fee reasonableness; and a practical, step-by-step guide to meeting the fee reasonableness requirements.

1. Best Practices for Ensuring
Retirement Plan Fee Reasonableness
©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.

2. Gina Gurgiolo, JD, LL.M
Gina Gurgiolo is a Senior Consultant for the Multnomah Group responsible for
the firm’s ERISA technical and recordkeeping vendor search consulting
services. Gina consults with plan sponsors on plan design, fiduciary
governance, and vendor fees/services.
Prior to joining the Multnomah Group in 2010, Gina managed the product
portfolio for a national retirement services firm and directed the firm’s plan
administration unit serving its largest clients. Prior to that, Gina managed the
retirement plan compliance and regulatory policy functions at another national
retirement services firm.
Gina earned her JD from the University of Pittsburgh and her LL.M in Taxation
with an emphasis in retirement plan and executive compensation law from the
University of Denver. Gina is a member of the Portland Chapter of the Western
Pension & Benefits Council, where she has been a conference speaker.
2 Best Practices for Ensuring Retirement Plan Fee Reasonableness

3. Agenda
• Context and Historical Overview
• Legislative
• Regulatory
• Judicial
• Preparing for a DOL Audit
• Most frequently requested information
• Case study
• Step-by-Step Guide to Fee Reasonableness
• Fee reasonableness “to-dos”
3 Best Practices for Ensuring Retirement Plan Fee Reasonableness

4. Context & Historical Overview
What is “reasonable”?
• Intangible no bright line
• Agreeable to sound judgment or logic
• That which is appropriate for a particular situation
• Not excessive relative to circumstances
Determining reasonableness requires comparison of alternatives and
evaluation of processes used
Under ERISA section 408(b)(2), retirement plan fees must be reasonable in
light of the services being rendered
• But, no specific codified definition of what constitutes fee reasonableness
per se
• Impossible to be absolute about reasonableness determinations
• Follow prudent process that contemplates alternatives
- Using prudent process to negotiate/compare fees/services promotes improved participant
outcomes
• Must know and understand applicable fees to determine reasonableness
• Where can plan sponsors find comprehensive fee information?
4 Best Practices for Ensuring Retirement Plan Fee Reasonableness

5. Context & Historical Overview
Regulations under ERISA section 408(b)(2) require annual covered service
provider-to-employer disclosure of fees
• First-year deadline July 1, 2012
• Empower plan sponsors to better comply with the fee reasonableness
standard under ERISA section 408(b)(2)
• Must terminate non-compliant covered service providers
1974: ERISA is enacted, including section 408(b)(2)
2007: Proposed fee disclosure regulations are issued
2009: Revised 2009 Form 5500 Schedule C requests more fee
information than ever
2010-2012: Fee disclosure regulations are finalized and become effective;
DOL investigation and enforcement activity increases
2012: First retirement plan fee class action suit decided (Tussey, et al. v.
ABB, Inc.); similar litigation looming
5 Best Practices for Ensuring Retirement Plan Fee Reasonableness

6. Context & Historical Overview
Tussey, et al. v. ABB, Inc.
• Federal district court in Missouri; appeal to Eighth Circuit Court of Appeals?
• Case originated in 2006 from 15 separate complaints filed by ABB, Inc.
employees
• Separate actions certified as a class in 2007 ? first instance of a plan fee
related class action suit
• Plaintiffs awarded $37M because:
• 401(k) plan fees subsidize corporate services benefiting executives
• A lower cost share class of investments was available, but was not being used
• Policies/process not being followed
• Failure to pass excess investment revenue sharing back to the plan
• Reaffirmed fee reasonableness standards under ERISA section 408(b)(2)
• Similar litigation is looming
• At issue is whether the plan fiduciary used a prudent reasonableness evaluation
process, had the right level of expert assistance, and/or documented the process
steps
• No requirement to choose lowest-cost services and investment options, just act
prudently and pay reasonable fees
6 Best Practices for Ensuring Retirement Plan Fee Reasonableness

7. Preparing for a DOL Audit
• The DOL has the responsibility to enforce ERISA’s standards, including
ensuring fee reasonableness
• DOL investigation/enforcement activity is on the rise since 408(b)(2)
regulations were proposed and fee litigation trend began
• How are plans are selected for investigation?:
• Randomly
• For cause/“red flag”
• 5500 reports late deferral remittance
• Independent auditor issues qualified report
• Participant complaints
• Up to 6-year investigation period
7 Best Practices for Ensuring Retirement Plan Fee Reasonableness

8. Preparing for a DOL Audit
What will DOL request?
• Service provider information
• Accountants, actuaries, administrators, attorneys, brokers, consultants, contract
administrators, insurance companies, investment advisors, investment managers,
recordkeepers, TPAs, valuation appraisers
• Service agreements/contracts
• Describing services, duties, obligations, responsibilities, fee / compensation /
commission schedule
• Service provider reports
• Investment performance reports, audit reports, actuarial reports
• Fee assessment and payment documents
• Invoices, cancelled checks
• Service provider selection documents
• RFP, proposals, comparative evaluation analysis, negotiation communications,
assessment of fees relative to quality of service
• Investment documents
• Revenue sharing information, share class identification, stable value fund
illiquidity/redemption or surrender fees
• Rebate information
• 12-b-1 fees, sub-transfer account fees, marketing/services fees, expense
reimbursement account deposits
8 Best Practices for Ensuring Retirement Plan Fee Reasonableness

9. DOL Audit Case Study: Fee Reasonableness
Context: Response / Outcomes:
• 403(b) Plan Sponsor • Submitted requested information,
• 2012 investigation including annual fee benchmarking,
search effort documentation, fee
• January 1, 2007 to present
policy statement
investigation period
• No requested follow-up information
regarding the DOL’s evaluation of
fee reasonableness
9 Best Practices for Ensuring Retirement Plan Fee Reasonableness

10. Step-by-Step Guide to Fee Reasonableness
Fee reasonableness to-do list:
 Maintain a Fee Policy Statement and other proper fiduciary governance
documents (e.g. Committee Charter, Investment Policy Statement)
• List applicable fees under the Plan
• State whether the employer, forfeiture account, or participants pay the fees
• State intent to ensure fee reasonableness
 Timely receive and review/analyze annual covered service provider-to-
employer fee disclosure notice
• Know your plan’s fees and understand how they work
• Follow-up with questions as needed
 Benchmark recordkeeper’s fees to the market annually
• Plan is not required to select the recordkeeper with the lowest fees
• Fees must be reasonable in light of services rendered
• Negotiate incumbent recordkeeper’s fees if they are higher than benchmarked
range
10 Best Practices for Ensuring Retirement Plan Fee Reasonableness

11. Step-by-Step Guide to Fee Reasonableness
Fee reasonableness to-do list (cont.):
 Request lowest-cost share class of investment options
• Document the process and decision whether to implement
 Issue request for bid or request for proposal to the prequalified recordkeeper
universe every 5-6 years
• Coincides with typical statutes of limitations
• Document the effort, resulting decisions and rationale
 Gather appropriate documentation in preparation for DOL investigation
• Expect an audit and prepare to avoid scramble for documents (typically, 15-day
response period allowed)
• Organize service, investment and fee information requested in the event of an
investigation
11 Best Practices for Ensuring Retirement Plan Fee Reasonableness

12. Disclosures
Multnomah Group, Inc. is an Oregon corporation and SEC registered
investment adviser.
Any information and materials contained herein or on our website are provided
“as is” for general informational purposes only. It is not intended to be
comprehensive for any particular subject. While Multnomah Group takes pride
in providing accurate and up to date information, we do not represent,
guarantee, or provide any warranties (either express or implied) regarding the
completeness, accuracy, or currency of information or its suitability for any
particular purpose.
Receipt of information or materials provided herein or on our website does not
create an adviser-client relationship between Multnomah Group and you.
Multnomah Group does not provide tax or legal advice or opinions. You should
consult with your own tax or legal adviser for advice about your specific
situation.
12 Best Practices for Ensuring Retirement Plan Fee Reasonableness