In managing their defined contribution (DC) retirement plans, plan sponsors, for years, have been waging war on two fronts—on the first, trying to boost employee engagement and raise participation and contribution rates, and the second, to reduce the costs for participants.
Sponsors have much to show for both struggles. In terms of the latter in particular, recordkeeping fees have fallen by half, and, from 2006 through 2016, investment fees retreated 28%, according to the annual Defined Contribution Plan and Fee Survey for those years from consulting firm NEPC. In 2017, however, fees stopped falling and showed little change. Sponsors are still hammering providers to take costs lower, but experts differ on how much more there is to cut.
“Plan sponsors have done much to reduce investment fees,” notes Ross Bremen, a partner at NEPC, in its Boston office. “And fee litigation in all of the recordkeeper lawsuits has only intensified sponsors’ desire to stay on top of the situation.” (The chart shows the median fee rates from the NEPC surveys and the steady rate last year.)
Investment fees make up 80% or more of total plan costs and fall under frequent sponsor scrutiny in quarterly reviews, Bremen says. In NEPC’s 2016 survey, about one-third of plans reported bargaining for a lower fee for one or more investment products. Progress in fees reflects the addition of passive investment funds: About one-third of target-date funds (TDFs) in plans NEPC surveyed are passive. At larger plans, sponsors are relying less on mutual funds, in favor of lower-cost, commingled investment trusts.