ERISA requires that fiduciaries pay only reasonable costs relative to the services provided, but provides no specific outline on what is reasonable. Some erringly believe that low-cost constitutes reasonableness; however, ERISA is clear that fiduciaries are not required to find the lowest-cost service provider.

Is it more reasonable to retain a more expensive service provider if it provides greater value to participants? Or is it more reasonable to retain a bare bones service provider such that participants don’t take full advantage of their 401(k) in order to save for their retirement? As is the case with many fiduciary questions, it is more important to document the prudent process taken to reach the answer, than the answer itself!

An excellent explanation of  “reasonable” can be found in The Age of Reasonableness by John Hare.

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