4128 / Does a plan fiduciary still have to evaluate the reasonableness of compensation paid under a service provider’s arrangement?

Yes.

This evaluation is done on a facts and circumstances basis following the basic requirements of ERISA that apply to all fiduciary decisions. The disclosures under these regulations are designed to provide the appropriate information to enable a responsible plan fiduciary to determine whether the fees paid for the services provider are reasonable. Best practices indicate that fiduciaries will document receipt of the disclosures and why they deemed the arrangements reasonable and prudent.

There is no bright line guidance in these regulations or in ERISA as to when a specified level of fees being paid to a service provider is unreasonable for the services being provided. The DOL, through the Employee Benefits Security Administration (“EBSA”), has provided on its website (http://www.dol.gov/ebsa/) numerous documents that discuss a fiduciary’s responsibility regarding the selection of service providers. Those documents contain work sheets that may be used by a plan fiduciary to help evaluate the reasonableness of the amount of the fees being paid to a covered service provider.

Although this guidance replaces Section (c) of DOL Regulation Section 2550.408b-2, these regulatory changes should be read in conjunction with the full regulations under this section. In particular, see comments under termination compensation from subsection (a) and (d).¹