The Test Already Exists - EBSA Just Hasn’t Applied it to the Right Market

Daniel Aronowitz Gave Us the Test. Here's What It Shows About Small Plan Recordkeeping.

Daniel Aronowitz, now EBSA's Assistant Secretary, spent years arguing that excessive fee litigation was broken because plaintiff attorneys were using bad comparisons. He was largely right. The cases against large university plans routinely used unreliable benchmarks, inflated Form 5500 data, and compared materially different services as if they were identical. His critique was methodological, not a defense of excessive fees.

In his 2021 white paper on the Northwestern pleading standard, Aronowitz articulated what a legitimate excessive fee case actually requires. Two elements: first, the fees must be egregious — not merely higher than some aspirational number, but so disproportionately large they bear no reasonable relationship to services rendered. Second, the benchmark must compare materially identical services. Not active funds against passive indexes. Not complex university recordkeeping against a fictional $35 per participant number. Apples to apples.

That is a rigorous and defensible standard. Apply it honestly to the small plan recordkeeping market and see what it produces.

The Small Plan Market Is Different

Aronowitz's critique assumed that service complexity creates legitimate room for comparability arguments. That assumption has real force in the large plan market. A $2 billion university plan with multiple recordkeepers, hundreds of investment options, and a TIAA guaranteed annuity presents genuine service differentiation questions. Reasonable people can disagree about whether the fees were justified.

Small plans present a different picture. Service variation exists in this market — call center models differ, payroll integrations vary, advisor layers are structured differently. But the range of that variation is narrower and more observable than in large plans. A 50 participant bundled plan is getting contribution processing, compliance testing, participant accounts, and statements. So is every other 50 participant bundled plan. While service variation exists, in the small plan market it is sufficiently limited and observable that materially comparable benchmarking is not only possible, but reliable.

What the Data Shows

I have analyzed public Form 5500 filings going back to 2009, covering thousands of retirement plans across the full size spectrum. The fee differences in the small plan recordkeeping market are not subtle.

Ascensus, John Hancock, Principal, and Fidelity all provide recordkeeping services to small plans. When comparing plans in the same participant count band with the same bundled structure and the same core service scope — compliance testing, participant accounts, contribution processing, statements — these providers are delivering materially similar services. The fee differences between them are not. Among plans of comparable size, the data shows fee differences that are multiples of what lower cost providers charge for the same core functions. To the extent compensation structures differ, those differences are observable in the total compensation reflected in Form 5500 data and do not account for the magnitude of the fee dispersion. A provider may offer a better participant website or more polished reporting tools. Those are marginal service differences. Fee gaps of that magnitude are not explained by marginal service differences. They meet Aronowitz's own threshold when evaluated against materially comparable plans: disproportionately large, bearing no reasonable relationship to services rendered.

This does not suggest that all fee variation is imprudent, but that fee dispersion of this magnitude, among materially comparable plans, warrants scrutiny under a prudence framework.

The same analysis applies to advisory fees. A plan advisor whose compensation is asset based grows automatically as plan assets increase, regardless of services rendered. In the small plan market, where advisory services are similarly standardized, participant meetings, fund lineup reviews, committee support, fee differences between advisors serving comparable plans are observable and benchmarkable by the same methodology. The loyalty question compounds the prudence question: not only are the fees potentially egregious relative to comparable advisors, but the compensation structure itself raises the question of whether compensation remains reasonably related to services as plan assets grow. Advisor compensation appears in Form 5500 data. What does not appear in any required disclosure, not in 408(b)(2), not in Form 5500, not in any document the advisor is obligated to produce, is a contemporaneous account of services actually performed. Plan sponsors generally cannot answer the most basic question: what did the advisor do last year to justify the compensation they received?

By his own two part test — egregious fees, materially similar services benchmarked honestly — his standard is met. In the market segment that ERISA excessive fee litigation almost entirely ignored.

This Is an EBSA Argument, Not a Litigation Argument

Aronowitz has said he wants to end regulation by litigation. He is right that plaintiff attorneys are not the appropriate regulatory mechanism for ERISA enforcement. But ending litigation without replacing it with genuine EBSA enforcement doesn't protect participants — it protects providers.

The small plan recordkeeping market has never been seriously examined by EBSA through the lens Aronowitz himself constructed. His framework — egregious fees, materially similar services — is exactly the right analytical tool. It just needs to be applied to the segment of the market where its assumptions actually hold.

EBSA has the authority to issue guidance establishing that small plan recordkeeping is sufficiently commoditized to support fee benchmarking. It has the authority to signal that fee differences of the magnitude the data shows, between providers delivering materially similar services to plans of similar size, warrant scrutiny. That is not regulation by litigation. That is regulation by EBSA doing what EBSA exists to do.

The test already exists. The data already exists. The question is whether the agency chooses to apply them.