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Chief Investment Officer: Seven-Year Streak of Falling Corporate DC Plan Fees Ends

September 4, 2017 / by NEPC

Seven-Year Streak of Falling Corporate DC Plan Fees Ends

NEPC report says fees didn’t decline for the first time since 2010.

Investment consulting firm NEPC’s annual defined contribution plan and fee survey reported that record keeping, trust and custody fees remained flat over the past year, the first time it hasn’t declined since 2010.

“After consistently decreasing for the past seven years, it’s surprising to see fees flatten out even though we had been anticipating it,” said Ross Bremen, partner and NEPC’s defined contribution strategist, in a statement. “Plan fees were the lowest in a decade last year, and now the trend has taken a breather.”

The 12th Annual NEPC Defined Contribution Plan and Fee Survey covers 123 respondents from DC plans with $138 billion in aggregate assets, representing 1.5 million plan participants. The average plan size of the respondents was $1.1 billion, and each plan had more than 12,000 participants.

The survey found that defined contribution plans have a median record keeper, trust, and custody fee of $59 per participant, up from $57 in 2016. The asset-weighted average expense ratio for defined contribution plans is currently 0.41%, which was a shade under the 0.42% ratio reported in NEPC’s 2016 survey. However, both the median fee and average expense ratio have dropped substantially since NEPC first conducted this study in 2006, when fees were $118 per participant and the expense ratio was 0.57%.

Although the decline in fees came to a halt over the past year, Bremen said he believes there’s a good chance fees will lower again next year.

“This projection is based on a few different factors,” he said, “including, sponsors who have been considering share class and contracting changes but have not yet made them, and significant numbers of vendor searches in progress that have not been captured.”

The survey results showed that the median plan in 2017 offers 23 investment options, compared to 22 options in 2016, and just 14 in 2006. Among those investment options, target date funds continue to be the most popular for plans, with 94% offering the vehicle. Of those plans, 90% use target date funds as their qualified default investment alternatives, and assets in those funds are at an all-time high of 34%, according to the report.

The report also said that despite passively managed investment options receiving a lot of attention as fund administrators and state treasurers vow to lower fees, it found that less than 1% of respondents were 100% invested in passive vehicles. The findings indicate that 33% of plans include passive target date funds, and 54% of plans have the makings of a passive tier to complement active options.

Other key findings from the report include:

  • Some form of revenue sharing is used by 77% of the plans. However, smaller plans are beginning to eliminate revenue sharing altogether.
  • Only 5% of plans have excess revenue retained by the record keeper, while 73% use it to offset fees, and another 33% return it to participants.
  • Concerning non-bundled plans, 60% use revenue sharing to offset fees, 24% return revenue sharing dollars to participants, and another 30% have no revenue sharing.

Read the article on Chief Investment Officer's website here.

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Topics: Defined Contribution, Survey, Press

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