18 December 2018

“All-in” Fees for 401(k) Plans

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“All-in” Fees for 401(k) Plans 

A new report takes a look at the “all-in” fees for 401(k) plans, and what drives and doesn’t drive those trends. The study, released by Deloitte and the Investment Company Institute, indicated that plan size, average participant account balance and percentage of plan assets invested in diversified equity holdings are drivers of fees.
What’s (Still) Driving 401(k) Fees
Among the plans reviewed, plans with more participants and higher average account balances typically had lower all-in fees, spreading what may have been larger fees in aggregate across more assets and participants. The ‘all-in’ fee includes all administrative or recordkeeping fees as well as investment fees, regardless of whether they are assessed at the plan, employer or participant level, and was calculated as a percentage of plan assets. The calculation excluded recordkeeping and administrative activity fees that only apply to particular participants who engage in the activities (such as loan charges).
The report noted that the median DC plan participant in their study was in a plan with an all-in fee of 0.67% of assets, based on plans included in the study. Across all participants, the all-in fee ranged from 0.29% of assets to 1.29% of assets. The median annual “all-in” fee per participant was $267.
Since equity funds tend to have higher expense ratios than other asset classes, it should come as no surprise that plans with higher allocations to diversified equity holdings tended to have higher all-in fees as a percentage of plan assets.  
Factors Not Driving “All-In” Fees
Perhaps of greater interest, the study also considered a number of other variables that did not appear to be drivers of the ‘all-in’ fee, including:
• participant contribution rates 
• the annual contribution cash flow  
• the presence of company stock 
• the number of business locations 
• the plan sponsor’s industry 
Nor did variables related to plan design appear to drive plan fees, including:
• the percentage of assets invested in the proprietary investment products of the service provider 
• the number of investment options 
• the use of automatic enrollment or automatic deferral increase 
• the availability of a loan option 
• employer contribution rates
The report also noted that none of the “service provider related” variables appear to drive plan fees, including:
• the type of service provider (mutual fund company, life insurance company, bank, third party administrator) 
• the size of service provider
• the length of time since the last competitive review of the retirement service provider by the plan sponsor
• the tenure with the service provider 
• the presence of other service relationships (specifically, a defined benefit or non-qualified plan)
Previous Comparisons
While similar evaluations had been published in prior years, the survey’s authors took pains to explain that differences in the composition of the samples (particularly the absence of data from any plans with less than $1 million in assets in the current study) precluded direct comparisons. However, this study found the three main drivers from the 2011 survey continued to be important factors in explaining the variation in fees across plans within the 2013 survey sample. 

Click here to access the full article on Napa Net.

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