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This was the subject of quite a lengthy debate in an online, 401(k)-related discussion group a little while back. It quickly amassed quite a few comments. While the discussion took a few twists and turns, the primary debate was whether it is ever appropriate for a plan to pay a higher fee for a service if a lower-cost option is available.
This post is not about answering that question, per se, but rather what I perceived to be an apparent lack of appreciation for the overall complexity of qualified retirement plans and a sense that certain disciplines within the industry have the market cornered on expertise worthy of a higher fee while others are simply commodities.
All who work with qualified plans deal with legal and regulatory requirements that fill countless reams of paper. The Pension Protection Act alone is more than 1,000 pages long and includes something for everyone – actuaries and investment advisors, record-keepers and consultants, attorneys and accountants (apologies if I missed anyone). And all of those rule are public record, meaning that we all have equal access to the source material.
There are players within each of these subsets who dabble and those who are experts. Some are reactive and some proactive. There are those who shuffle data and those who ask questions. Some who really read and understand that source material and some who rely on summaries or simply hope the software gets it right. In short, there are vendors and there are trusted advisors.
Even among the trusted advisors, not all are created equal. One wouldn’t expect all doctors to have the specialized knowledge of a neurosurgeon, so why expect all attorneys to understand the nuances of ERISA? The same can be said of other disciplines – not all investment advisors understand fiduciary responsibility or prohibited transactions; and not all CPAs know how to audit 401(k) plans.
Those of us who have chosen to make a career of working with retirement plans owe it to ourselves and our clients to recognize the importance of working with other professionals who not only know what they are doing but also have the “client service gene” that allows them to apply the knowledge in a way that is meaningful and practical. That expertise might not come cheap, but it’s much less costly than paying upwards of $2,500 per day when a Form 5500 is rejected due to a deficient audit or tens of thousands of dollars in professional fees, make-up contributions and penalties when a low-cost TPA uses the wrong definition of compensation to calculate a match because they don’t know how to read a plan document.
I guess we have our answer to the original question after all.
