Skip to main content

Must-See Episode of "Between Two Daves" on the Topic of Tariffs Available Now!

Revenue Sharing Pic

Revenue Sharing Decisions

As a result of the significant rise in revenue sharing litigation it behooves plan fiduciaries to confirm and document the prudence and appropriateness of any revenue sharing arrangement.

Revenue sharing is the sharing of fees from one service provider (e.g., an investment fund manager) to another service provider (e.g., your record keeper). Revenue sharing may be built into a fund’s asset-based expense ratio if a plan utilizes a higher cost share class. The revenue sharing is often used to offset plan-related expenses rather than having the plan sponsor or participant making direct payment for specific plan services.

A growing number of lawsuits allege that fiduciaries breached their duties of prudence by utilizing investment share classes with “excessive” revenue sharing. It is important to understand that ERISA does not prohibit plans from using revenue sharing to pay plan fees, but plan fiduciaries must be prepared to verify that their compensation arrangements are reasonable and prudent, as these fees are being paid from plan assets. Plan sponsors should be ready to show the prudent process utilized to justify the use of revenue sharing and the ongoing monitoring they undertake to ensure they do not become excessive with the growth of a plan. In the event that a plan sponsor cannot show the prudence of using revenue sharing it is important to know that the Department of Labor (DOL) may find issue with its use and issue directives to plan sponsors to make a plan “whole” via threatened legal actions. In addition, plan participants may initiate class action lawsuits against plan fiduciaries as well.

According to a recent survey from Vanderbilt University, the National Bureau of Economic Research (NBER); and the Board of Governors of the Federal Reserve System more than half the plans surveyed utilize revenue-sharing arrangements with at least one fund on the menu*.

The strongest position for a fiduciary is to have a documented and deliberate decision-making process that considers all relevant factors documenting prudence and the rationale for utilizing revenue sharing.

*A copy of the research paper is available at: https://papers.ssrn.com/sol3/p...

Related Insights
I Stock 2202941886 IRS Building copy 800px

IRS Publishes Proposed Regulations on SECURE 2.0 Catch-Up Contribution Rules

On January 13, 2025, the IRS published proposed regulations on two SECURE Act 2.0 changes to 401(k) catch-up contribution rules: 1.) increasing the catch-up contribution limit for taxpayers aged 60, 61, 62, or 63 and 2.) requiring Roth treatment of catch-up contributions made by taxpayers who, for the preceding calendar year, receive more than $145,000 in wages from the employer sponsoring the plan. The IRS’s proposal addresses certain issues with respect to these two changes. Learn more.

Read More
I Stock 1980590886 DOL copy 800px

DOL Temporary 'Non-Enforcement Policy' for Small-Balance Transfers to State Unclaimed Property Funds

On January 14, 2024, the Department of Labor (DOL) published a Field Assistance Bulletin (FAB) 2025-01 announcing a “non-enforcement” policy with respect to the transfer of small defined contribution (DC) plan balances ($1,000 or less) belonging to missing participants to a state unclaimed property fund. Plan sponsors, on occasion, must deal with missing plan participants and beneficiaries, and what to do with their plan balances. Find out more.

Read More
Image1 Market Turmoil

Market Turmoil Spurs Trading, But Staying Put Pays Off

The U.S. stock market suffered its worst day in five years on Friday, April 4, following President Donald Trump's announcement of sweeping tariffs. The S&P 500, Nasdaq, and Dow Jones Industrial Average all posted significant losses.

Despite the turbulence, financial experts continue to advise retirement plan investors to “stay the course” rather than react impulsively.

According to Alight Solutions, stock market volatility has already driven a surge in retirement plan trading in early 2025. In the first quarter alone, 0.77% of plan balances were traded—the highest rate since Q3 of 2020. Trading was particularly elevated in March, exceeding the activity seen in the entire fourth quarter of 2024. Despite increased activity, one Alight expert notes that less than 1% of participant assets were actually traded, indicating that most investors are sticking with their long-term strategies. Read more

Read More
Play