Profit sharing plans, 401(k) plans, and other types of defined contribution plans have become the predominant type of retirement plan in U.S. businesses. As we all know, a participant’s benefit in a defined contribution plan is not a guaranteed amount but rather simply his or her vested account balance, that is, the vested portion of the contributions made on the participant’s behalf and the attributable earnings. This means that the fees and expenses in a profit sharing or 401(k) plan are of critical importance as they have a direct impact on participants’ ultimate retirement benefit.
In this Commentary, we will discuss the fiduciary duties under the Employee Retirement Income Security Act of 1974 with respect to fees and expenses, describe the more common compensation arrangements in the retirement plan industry today, and provide suggestions for defined contribution plan fiduciaries to monitor and evaluate their plans for compliance with the applicable legal standards.1
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