Revenue sharing is and will continue to be an important issue going forward for DC plans. Shipman Goodwin reviews these issues as well as others that investment committees should consider when selecting and monitoring funds.
Most plans want revenue sharing to pay all applicable plan expenses, which seems to be fine according to court decisions and the DOL, but they could get in trouble if funds are chosen with an eye toward the revenue sharing they produce. As fiduciaries, plan sponsors must design the plan for the sole benefit of participants, so selecting funds that generate more revenue for third parties would be a violation. And what if the revenue exceeds the cost? How should those funds be allocated?
While most plans, even smaller ones, understand revenue sharing especially with last year’s disclosure regs, many are confused about what is being paid for with how third parties get paid. Helping plans create the right language in their investment policy statement, based on recent case law, is an essential role for advisors to help limit liability—which is near and dear to the hearts of CEOs and business owners.
