The 408(b)(2) fee disclosure is the document most plan sponsors receive, glance at, and file. That is a mistake, because it is one of the few pieces of paper that exists specifically so the employer can answer a fiduciary question: are the fees this plan pays reasonable for the services the plan actually receives? Nobody answers that question for you. The service provider supplies the disclosure; the sponsor owns the review.
This guide is for employer plan sponsors — the company, the committee, and the people who sign. It walks through what belongs in the disclosure, how to read each section critically, and what evidence to keep so that a review actually looks like a review two years later.
Why the disclosure exists at all
ERISA generally prohibits a plan from transacting with a service provider — that is a party in interest — unless the arrangement is for necessary services and the compensation is reasonable. The service-provider disclosure rule is the mechanism that makes that determination possible. Covered providers must disclose their services, their fiduciary status, and the compensation they expect to receive, in advance, so the responsible plan fiduciary can decide whether to enter into or continue the arrangement.
Two consequences follow, and both land on the employer. First, “reasonable” is not “cheapest” — it is a relationship between price and services, judged with a documented process. Second, if a covered provider fails to disclose, the arrangement itself can become a problem for the plan, which means the sponsor has an interest in noticing the gap rather than waiting to be told.
The five things every disclosure must let you see
Disclosures arrive in wildly different formats — some as a tidy summary, many as a bundle of cross-references to service agreements, fund prospectuses, and rate schedules. Format is the provider’s choice. Content is not. Work through these five items before you accept the document as complete.
1. A description of the services
You need a concrete list of what the provider will do, in enough detail to compare against what you believe you bought. This is where most sponsors discover the gap between the sales conversation and the contract. “Compliance support” is not a service description; signing and filing the Form 5500, approving distributions, or monitoring eligibility are. If a duty you assumed was covered does not appear anywhere, it is yours by default — see our breakdown of how a TPA, a plan administrator and a 3(16) divide the work.
2. Fiduciary or registered-adviser status
The disclosure must state whether the provider will act as an ERISA fiduciary or a registered investment adviser with respect to the plan. Read this narrowly. Many providers accept fiduciary status only for a defined slice — investment selection, for example — while explicitly disclaiming it for everything else. That is legitimate, but it tells you where the residual liability sits. Our comparison of the 3(16) administrative role and the 3(38) investment role explains which duties transfer under each appointment.
3. Direct compensation
Direct compensation is what the plan or the sponsor pays the provider — base fees, per-participant fees, transaction and event fees, conversion fees. Capture the unit of measure, not just the number. A per-participant fee behaves very differently as headcount grows than a flat asset-based fee does, and a sponsor who benchmarked only the headline number can be surprised at renewal.
4. Indirect compensation
Indirect compensation is money the provider receives from someone other than the plan or the sponsor in connection with the plan’s investments — revenue sharing arrangements paid out of fund expenses are the classic example. This is the section that most often changes a sponsor’s understanding of what the plan really costs, because the amounts do not appear on any invoice. Ask for the payer, the payer’s relationship to the provider, the services being paid for, and how the amount is calculated.
5. Compensation among related parties, and termination costs
Compensation paid between the provider and its affiliates or subcontractors must be described when it is set on a transaction basis or charged directly against plan investments. Termination compensation — what the plan pays to leave — belongs here too. Sponsors rarely price the exit until they need it, which is exactly when the leverage is gone.
What “reasonable” actually requires of you
The rule requires disclosure. Your fiduciary duty requires a decision. Those are separate steps, and the second one is the one that gets tested.
A defensible reasonableness determination compares the total cost of the arrangement — direct plus indirect — against the specific services delivered, in the context of a plan of your size and complexity. That usually means gathering comparative information: proposals, published fee schedules, or a formal fee benchmarking exercise. It also means asking whether the plan is paying for services it does not use, and whether any expense being charged to plan assets is actually a plan expense rather than a settlor expense the employer should bear itself.
Frequency is a judgment call your documents and governance process should answer. Reviewing on a stated cadence, and whenever fees or services change, is far easier to defend than reviewing when someone remembers to.
A review procedure you can repeat
- Inventory the covered providers. Recordkeeper, TPA, advisers, auditor, trustee, custodian. Make a list, then confirm you hold a current disclosure from each one that should provide it.
- Date-stamp what you received. Log the document, the version, and the date.
- Map disclosure to contract. Read the service description next to the service agreement. Note every duty that appears in neither.
- Total the cost. Build one page showing direct fees, indirect compensation, and who bears each — the plan, the participants, or the employer.
- Compare against something. Peer data, competing proposals, or a benchmarking report. Record what you compared to and why it was an apt comparison.
- Write the conclusion. A short memo or minutes entry: what you reviewed, what you compared, what you concluded, and what you asked the provider to fix.
- Close the loop on changes. Providers must disclose changes; put a diary entry on the file so an unannounced change is noticed.
- Follow up on gaps in writing. If a required element is missing, request it in writing and keep the request. The paper trail matters as much as the answer.
Where sponsors get hurt
- Filing without reading. Receipt of a disclosure proves nothing about prudence. The review is the fiduciary act.
- Benchmarking only the invoice. Ignoring indirect compensation understates plan cost and produces a conclusion that does not survive scrutiny.
- Assuming bundled means covered. Duties absent from the service description stay with the employer, including the ones nobody at the company knows are open.
- Charging settlor expenses to the plan. Design and business-decision costs generally belong to the employer, not to participants.
- No comparison, no memo. An undocumented conclusion is indistinguishable from no conclusion during an audit or document request.
- Never revisiting. Fees and services drift as the plan grows; a disclosure reviewed once at installation is stale.
What you can delegate — and what you cannot
You can delegate the assembly work: collecting disclosures, normalizing fee data, preparing the comparison, drafting the memo, and tracking changes. A capable administration partner should do all of that as a matter of routine, and a formal plan review is a sensible place to put it on a cadence.
What cannot be handed off is the decision to enter into or continue the arrangement, and the choice of who bears each cost. Those sit with the responsible plan fiduciary, which is why a functioning committee with a charter and real minutes is worth the setup effort — it gives the decision a place to live. Broader structure for that lives in our retirement plan governance overview.
How Admin316 fits
Admin316 does the fee-review legwork for sponsors: collecting disclosures from every covered provider, reconciling them against the service agreements, building the direct-plus-indirect cost picture, and giving the committee a documented comparison to act on. And unlike most providers, Admin316 accepts the ERISA 402(a) named-fiduciary appointment — the role most administrators decline — so the accountability for administrative fiduciary duties is contractual, not implied.
If you are not sure what your plan pays in total, or who is a fiduciary to it, that is the conversation to have. Book a time with Admin316 and bring your most recent disclosures.
