Benchmarking Service Providers

[khn]

Everyone is aware that Plan Sponsors have a fiduciary duty to periodically benchmark service providers, such as recordkeepers and advisors, that are paid from their 401(k) Plan. However, if a large company has outside counsel that they use for all corporate activities, but also pay sporadically from their 401(k) Plan when they perform work that can be paid as a qualified expense, do those services have to be formally benchmarked?

I think the selection of the outside counsel would be considered a settlor function since the fiduciaries are not involved in the decision. However, since they sometimes are paid from the Plan, does the Committee need to perform some sort of benchmarking on legal services? Any insights are appreciated. 

[Mike Preston]

Only if they want protection. 

 

[Luke Bailey]

khn, if it is paid by the plan, the plan is the client and the amount of the expense would come within the ambit of the plan administrator's fiduciary responsibility. If it is paid by the plan sponsor, not the plan, then depending on the subject of the advice or other legal service, it may still be for the plan, but in such a case only the quality of the service, not its cost, would be a fiduciary responsibility. Because of the lack of transparency regarding legal fees and, arguably, comparability, it will be very difficult to benchmark. I think most sponsors pay plan-related legal fees as an employer expense partly for this reason.