|Illustration by Greg Mably|
Many factors weigh on the design of an organization’s defined contribution plan. Cost—not just of administering the plan, but of things like contribution levels—looms large. Plan design can, of course, play a significant role in ensuring the program’s impact on attracting and retaining qualified staff, and there are downstream impacts from those decisions that manifest themselves in results such as rates of participation and deferral that can, in turn, have an impact on cost. A less visible influence can perhaps be found even in ERISA’s admonition to fiduciaries to ensure that the services rendered—and fees paid for those services—are reasonable.
Whatever your current method(s) of assessment and evaluation, plan sponsors have long appreciated the reality that, while every program may have its own unique set of circumstances and constraints, there is value in being able to compare your retirement plan designs with a valid set of comparables, if only to ensure that your design remains competitive.
As much commonality in design as there is among plans across all employer/plan sizes, there remain remarkable and vibrant differences between programs. In that regard, PLANSPONSOR’s annual Defined Contribution Survey has long set the standard in identifying plan-design trends, because of its breadth and depth. There were a record number of responses this year—more than 7,000, in fact, a 20% increase from the roughly 6,000 in last year’s survey. While one might expect most of that growth to come in the representation of smaller programs, the increase was more significant, certainly on a percentage basis, among larger programs.
In this, the year before a new series of fee disclosure regulations take hold, plan sponsors’ sense of fees paid by their plans was all over the board. About a quarter of mega plans (those with more than $1 billion in plan assets) said that the “approximate average expense ratio” of all the investment options in their plan was less than 25 basis points (0.25%), a sentiment expressed by nearly one in eight overall. Nearly half of those mega plans said the overall fee was between 25 and 50 basis points, but 8.2% in this market segment said they “didn’t know.” Indeed, the “don’t know” group was a significant group across market segments; one in 10 in the mid-size (plans with between $50 million and $200 million in plan assets) and large (between $200 million and $1 billion) categories admitted that, as did more than 18% in the small-plan (between $5 million and $50 million in plan assets) category, and a full third of those in the micro-plan segment (plans with less than $5 million in plan assets).
That said, more than two-thirds (70.4%) of plan sponsor respondents said they review plan fees annually, and the larger the plan, the more likely they were to do so. However, 6%—mostly among those in the micro-plan segment—admitted they “never” formally review actual administrative costs/fees. In a new question in this year’s survey, we asked who was paying those administrative/recordkeeping costs—and, perhaps somewhat surprisingly, a clear plurality (34.6%) said the employer did, and did so exclusively, a finding that included nearly half of micro plans, 29% of small plans, and 15% of plans in the larger segments. On the other hand, larger plans were significantly more likely to say that participants were carrying the costs through revenue-sharing arrangements. In fact, more than a third of mid-size and large plans did so, as did more than a quarter of those in the mega market.
A mixed approach—fees paid from a mix of revenue-sharing and employer-paid direct expenses—was the path for about a quarter (26.2%), though it was somewhat more common among the mid-size and large plans: 31.7%, and 30.3%, respectively.