BOSTON, August 23, 2017 – NEPC, LLC (www.nepc.com), one of the industry’s largest independent, full-service investment consulting firms to defined contribution plans, today published the results of its 12th Annual NEPC Defined Contribution Plan and Fee Survey, which looks at trends in the management of America’s employee-fueled retirement plans. For the first time since 2010, the results show that record keeping, trust and custody fees bucked the longstanding trend of declining year-over-year and remained flat.
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The survey found that DC plans have a median record keeper, trust and custody fee of $59 per participant, a slight increase from $57 in 2016. The asset-weighted average expense ratio for DC plans is currently 0.41%, consistent with the ratio reported in NEPC’s 2016 survey (0.42%). However, both the median fee and average expense ratio have dropped substantially since NEPC first conducted this study in 2006, when fees were $118 and the expense ratio was 0.57%.
“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. “Plan fees were the lowest in a decade last year, and now the trend has taken a breather. Low fees have been a source of mixed emotions. While sponsors are able to highlight their good work by reducing fees for participants, it’s done at the risk of hindering innovation and service. The race to the bottom is often a double-edged sword.
“However, we believe there’s a good chance fees will lower again next year,” said Bremen. “This projection is based on a few different factors, 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.”
In addition to fees, survey respondents were also asked about plan design. The results show that the median plan offers 23 investment options, compared to 22 options in 2016 and just 14 in 2006. Among those investment options, target date funds (TDF) continue to be the most popular turnkey solution for plans, with 94% offering them. Of those plans, 90% use TDFs as their qualified default investment alternatives and assets in TDFs are at an all-time high of 34%.
As “passively managed” investment options have garnered a lot of press, less than 1% of respondents were 100% passive. The findings indicate that 33% of plans include passive TDFs and 54% of plans have the makings of a passive tier to complement active options.
Lastly, the survey asked respondents about their use of revenue sharing. Key findings include:
- Seventy-seven percent of plans use some form of revenue sharing, but are looking for ways to give excess revenue back to participants. Smaller plans in particular are now beginning to eliminate revenue sharing all together.
- Seventy percent of plans use revenue sharing to cover fees; however, almost a third (29%) use a flat dollar charge to pay fees instead.
- Just five percent of plans have excess revenue retained by the recordkeeper; three-quarters (73%) use it to offset fees, and another third (33%) return it to participants.
- Looking specifically at non-bundled plans, 60% use revenue sharing to offset fees, 24% return revenue sharing dollars to participants, and another 30% have no revenue sharing.
About the Survey
The 12th Annual NEPC Defined Contribution Plan and Fee Survey had 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. Copyright is held by NEPC.
For the full survey results, contact Liz Shaw at firstname.lastname@example.org.
About NEPC, LLC
NEPC® is an independent, full service investment consulting firm, providing asset allocation, manager search, performance evaluation, and investment policy services. We work with discerning investors on both an advisory and discretionary basis. We service 355 retainer relationships from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland and San Francisco. The firm services Corporate Defined Contribution clients representing assets of $198 billion. All asset figures current as of 6/30/16. Learn more at http://www.nepc.com/focus-areas/defined-contribution