"We were big into fee disclosure before it really became an issue,” says Keith Overly, Executive Director of the Ohio Public Employees Deferred Compensation Program. “We think it is part of the value we provide, and part of our competitive advantage.”
The $7.4 billion Ohio Deferred Compensation plan’s investment fees range from five basis points for the Vanguard Institutional Index Fund to 114 basis points for the Templeton Foreign Fund. The plan has disclosed investment fees in its newsletters for about 15 years, Overly says. “There always has been some level of communications regarding fees but, in the last four or five years, we really have focused on that,” he says. “There was a lack of knowledge out there.”
The 707,000 people eligible for the program, who include all state and local government employees in Ohio, often have multiple options for supplementary retirement-savings plans offered via their work. Ohio has five statewide defined benefit plans for state and local government employees, plus the City of Cincinnati has its own pension plan; all use the final-average-pay approach for their benefits formula. Among the approximately 60,000 state-government employees eligible for the 457, participation runs at 60%. Local-government employees sign up less, because the employees often have the most competing options. “Where we have the lowest participation is in the school systems and universities,” Overly says. “They usually have a plethora of 403(b) plans.”
Keeping It In-House
In the late 1990s, the plan decided to do its recordkeeping in-house, which Overly says plays a key role in keeping fees low. “It was a better way to control everything, rather than have different providers do different things,” says Paul Miller, the Ohio 457 program’s Assistant Director—Finance. “It allowed us to control it, manage it, and process it faster.” Six IT staffers work full-time on recordkeeping, for which the plan has its own proprietary software.
The 2010 administrative budget—encompassing customer service, recordkeeping, and administration—totals $8.7 million, approximately equal to 12 basis points. A plan spokesperson says that, because the plan performs all recordkeeping functions, most of the 15 mutual fund options do provide “some recordkeeping reimbursement, which is embedded in the total investment fee that they charge all investors.”
Some plans, such as New Jersey’s (see page 26), feel that keeping recordkeeping in-house limits the participant services they can provide. Overly does not believe that the Ohio 457 plan’s participant services have suffered because of the decision to stay in-house, and he points to new services added. Its EZ enrollment process aims to take people only a few minutes to sign up for the plan. Overly says that about a third of new enrollees use EZ, which only requires them to make one decision: to enter a dollar amount that they want withheld from their paychecks. About 5,400 participants have signed up for its SMartT automatic-increase program since 2008, he says. They specify by what dollar amount they want their contribution to rise, he says, rather than an automatic percentage increase.
Serving as its own recordkeeper also means that, on the investment side, the plan is not locked into the options available with a particular recordkeeper’s platform, Overly says. The plan currently has 15 core investment options from eight providers as well as nine BlackRock LifePath target-date funds and a multimanager stable-value option. (Stable-value fund manager and wrap fees equal 25 basis points, and the plan charges 10 basis points for its expenses, for a total fee of 35 basis points.) Investment consultant Ennis, Knupp & Associates, Inc., does the plan’s fee benchmarking as well as taking the lead on investment selection and monitoring.