Subcommittee reviews participant-directed plan fees after recent Supreme Court ruling; forfeiture use and per-head pricing discussed

The Retirement Plan Subcommittee on May 6 received a focused briefing on fees and participant-directed assets for the town’s defined-contribution plans, including the 457 plan, board of education plan, and 401(a). The briefing followed a recent U.S. Supreme Court decision referenced in the presentation and addressed record-keeping fee structure, fee-benchmarking results, and options for using plan forfeitures.

Adviser Tyler said the quarter’s topic was “fee focused” and that a recent court ruling (referred to in the meeting as the “Cornell Cunningham” matter) changes the litigation posture for plan fiduciaries, shifting to a presumption that sponsors must demonstrate fees are reasonable. “The idea now is that you're guilty until proven innocent with respect to, paying record keeping fees, and you'll have to actually prove that those fees are reasonable,” Tyler said during the presentation.

Benchmarking and fees: the advisers reported the town’s record-keeping fee was 16 basis points for the plans reviewed—below the average for comparably sized plans—and the overall weighted investment plus record-keeping cost was roughly 49 basis points for the largest plan. Investment expense for the menu averaged about 33 basis points; Mission Square’s record-keeping charge was reported at about 16 basis points. The advisers said the town’s plans benchmark “really well” and require no immediate change to the fund menu.

Per-head vs. asset-based record-keeping: advisers described a market trend toward per-participant (per-head) pricing for record keeping, particularly for very large plans (north of $1 billion), with representative per-head prices of roughly $25–$30 for very large plans. The town currently pays asset-based record-keeping fees; the committee asked advisers to request a per-head quote from Mission Square so the committee can understand whether a change would benefit or harm participants. “We can do that exercise for the next meeting,” Tyler said.

Forfeiture account and plan-document review: presenters noted forfeiture balances and potential uses. The board-of-education plan’s forfeiture balance was cited as about $147,000. Advisers reviewed the typical permitted uses of forfeiture dollars—(1) offset employer contributions, (2) pay plan expenses (audit, advisor fees), or (3) return as a one-time payment to participants—and told the committee that plan documents govern which of those options apply. Kelsey (town staff) agreed to provide plan documents and the advisers recommended confirming the chosen approach in the plan document if the town prefers a single permitted use.

Process and risk: advisers flagged litigation risk from both record-keeping fee claims and emerging litigation over forfeiture usage; they said many plans elect explicit plan-document language to state how forfeitures will be used. Committee members discussed whether forfeiture decisions are subject to collective bargaining; advisers said forfeitures are town-owned dollars once vesting conditions are not met and that the plan document and any applicable bargaining agreements must be checked.

What’s next: staff agreed to a set of follow-ups: (1) Kelsey will provide plan documents for counsel review, (2) advisers will request per-head pricing from Mission Square, and (3) the subcommittee will receive a fuller benchmarking package and any recommended plan-document language at a future meeting. Tyler also noted the plans’ target-date and other fund options were performing in line with expectations and no immediate fund-menu changes were recommended.

Ending: The committee took no formal vote on record-keeping structure or forfeiture policy at the May 6 meeting; it asked staff and advisers to return with pricing comparisons and plan-document recommendations.