While ERISA does not specify a permissible level of fees, the law does require that fees charged to a plan be “reasonable.” After careful evaluation during the initial selection, the plan’s fees and expenses should be monitored to determine whether they continue to be reasonable.
In comparing estimates from prospective service providers, employers should ask which services are covered for the estimated fees and which are not. Some providers offer a number of services for one fee, sometimes referred to as a “bundled” services arrangement. Others charge separately for individual services. Employers should compare all services to be provided with the total cost for each provider and consider whether the estimate includes services the employer did not specify or want. Remember, all services have costs.
Some service providers may receive additional fees from third parties, such as insurance brokers. Employers should ask prospective providers whether they get any compensation from third parties, such as finder’s fees, commissions or revenue sharing.
Plan expenses may be paid by the employer, the plan or both. In any case, the plan document should specify how fees are paid, and the fiduciary must ensure that those fees and expenses are reasonable, necessary for the operation of the plan, and not excessive for the services provided.
ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Legislative Brief includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA.
