401(k) plan sponsors laser-focused on fees

But many aren't calculating 'indirect revenue'

Jan 18, 2019 @ 2:21 pm

By Greg Iacurci

Fees charged in defined-contribution plans rank as plan sponsors' top area of focus in 2019, according to a new report, as employers continue to worry that high fees for functions like administration and investment management could expose them to legal liability.

Plan fees ranked ahead of the participant communication and financial wellness categories, which respectively ranked as plan sponsors' No. 2 and No. 3 focal areas, according to consulting firm Callan's annual Defined Contribution Trends survey.

Plan fees have steadily gained importance in plan sponsors' minds — just four years ago, the category ranked No. 4 in importance among plan sponsors. Retirement readiness, a measure of how prepared workers are for retirement, had the top spot last year but fell to the fifth spot this year.

Lawsuits filed against employers for allegedly excessive 401(k) fees have taken the industry by storm since they began appearing en masse in the mid-2000s, leading to broader cost-consciousness and cost-cutting among both employers and their retirement-plan advisers. The lawsuits have since branched out into other corners of the retirement market, such as 403(b) plans.

"I think we'll continue to see fee pressure across the industry," said Jamie McAllister, a consultant at Callan. "The lawsuits definitely play into it."

Plan sponsors' top-ranked fee initiatives for 2019 are all aimed at reducing fees, which respectively are: switching to lower-fee share classes, conducting a fee study, and switching certain investment funds to collective investment trust funds or separately managed accounts (which often come with lower expenses than mutual funds in retirement plans).

Fees were an important consideration for plan sponsors last year, too. In 2018, plan sponsors' said reviewing plan fees was the most important action taken to improve their fiduciary position — for the third year in a row, according to Callan.

Use of CITs has surged to a high of 75% of DC plans, according to the consultancy, up from 65% last year and 44% in 2011.

However, one surprising point, according to Ms. McAllister, was "indirect revenue," the revenue sharing between entities that may pass from a managed-account provider to the plan's record keeper, for example. While 58% of plan sponsors calculated the revenue, a large proportion — 42% — do not know or are not evaluating indirect revenue.

"Given all the lawsuits, fee discussions and level of plan sponsors' due diligence, I thought that would've been higher," Ms. McAllister said.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Featured video

Events

These are the federal and state rules that will most impact 401(k) advisers

Will Hansen, chief governmental affairs officer for the National Association of Plan Advisors, discusses regulation and legislation poised to have the biggest impact on advisers.

Latest news & opinion

Centerbridge said to be in talks to buy Advisor Group

Advisor Group's independent broker-dealer network in the U.S. has more than 7,000 advisers.

The drawback of Richard Thaler's 401(k)-Social Security idea? Social Security itself

Observers think Congress would need to address Social Security's funding levels and offer enhanced protections for the concept to work

Social Security funding outlook improves slightly

Retirement reserves extended one year; disability fund by 20 years

IBD report: Another impressive year

Despite a stock market decline, revenue is up. And the streak isn't expected to end anytime soon.

IBDs with the most CFPs

How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print