Ted Benna’s back.

At age 74, the benefits consultant who in 1980 pioneered the 401(k) plan design, is coming out of retirement to launch a new business helping plan sponsors evaluate whether the fees they’re paying to plan advisers are reasonable.

“Life was too boring last year,” he says, speaking from his home in scenic rural central Pennsylvania. “So I made a few calls to stir the pot” and identify a need, and people who could help him meet it.

His principal partner in the just-launched 401k Benna LLC is Trisha Brambley, whose company, Retirement Playbook, Inc., performs retirement consultant/adviser search and plan due diligence services.

Brambley, who worked with Benna in the dawn days of the 401(k) era when both were employed by The Johnson Companies, has gained prominence in the 401(k) industry in the intervening years.

She has served on the Department of Labor’s ERISA Advisory Council and developed DOL recommendations for target-date fund analysis, stable value issues and plan participant financial education.

Insufficient scrutiny

Benna notes that in the small and even mid-sized plan market, CEOs frequently turn to personal acquaintances when choosing an adviser to set up a 401(k) plan. Because of a sometimes naïve trust in the adviser based on that relationship, these sponsors often don’t apply the high level of scrutiny to proposed vendor arrangements required of them as fiduciaries.

“Usually it’s, ‘I can trust that person, so I don’t need to look at what’s going on,’” he says.

In some cases, advisers “have been able to operate pretty much with impunity,” Benna says. He adds, however, that one of his goals is to “help the good advisers stay in the game.”

The disruptive force of the soon-to-be-released DOL fiduciary rules governing the provision of retirement financial advice will, in theory, make it harder for advisers to over-charge for their services. And yet the same expectation surrounded the 2012 release of the DOL’s fee disclosure regulations. If those regulations were completely effective, the DOL might not have felt the need to come out with the fiduciary standard regulations, Benna suggests.

401k Benna will directly provide two services to plan sponsors:

  • For $5,000, “determine whether current adviser’s fees are reasonable,” and
  • For a fee ranging between $5,000 and $10,000, “determine whether all plan fees are reasonable.”

If a sponsor decides, possibly after receiving an assessment that the fees it is paying are excessive, that it needs to start from scratch and conduct an adviser search, that service will be performed by Brambley’s Retirement Playbook, Inc.

What’s ‘reasonable’?

Whether or not an adviser’s fees are “reasonable” ultimately is a judgment call on the part of the sponsor, Benna acknowledges. But the methodology 401k Benna will use for its own assessment will be more sophisticated than merely looking at averages.

Average fees for plans with similar demographics can be misleading, Benna says, because they can be skewed by some extraordinarily excessive fees on the high end. That potential statistical flaw would not be overcome simply by using median fees, he adds.

What Benna will explore, he says, includes how much time the adviser spends servicing the plan. Few service agreements attempt to specify the amount of time an adviser will devote to plan servicing. “I’ll say, let’s quantify this,” he says.

He will translate that into an hourly servicing rate, to provide some perspective for sponsors ­– assuming the adviser doesn’t quote an hourly rate in the service contract.

Benna acknowledges that it might be difficult for an adviser to project the amount of time he will spend on a plan. But the adviser should be able to come up with a reasonable estimate of the amount of time he has spent on a plan over the past year. And if he can’t, that’s a big red flag.

“If the adviser says it was 30 days, and the sponsor says ‘I only saw you on five days,’ at least they’ll know they have a different perception to reconcile,” Benna says.

Service specification

More fundamentally, Benna will determine the extent to which the adviser’s services are even clearly articulated in a service agreement. All too often, he says, sponsors either lack a clear agreement, or can’t put their hands on it even if they do have one.

Similarly, Brambley has helped many plan sponsors, particularly those with smaller plans, who had never thought to inquire what fees the plan is paying the adviser. And those sponsors that might be able to cite the formula for an asset-based fee might not know to think about whether, for example, increasingly higher (in dollar terms) fees are warranted merely by virtue of investment growth of plan assets.

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