PS Coach | Published in September 2015

Recordkeeping Fees

There are a variety of payment structures available to plans

By Sara Kelly | September 2015
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Art by Jasu Hu

Retirement plan fees are a hot button issue for plan sponsors. As a fiduciary, one must ensure that all plan costs are reasonable and necessary, says Jennifer Bennett, senior vice president of relationship management at Fidelity Brokerage Services, in Covington, Kentucky. While monitoring expenses is a necessary fiduciary duty, once an appropriate recordkeeping fee has been agreed upon, how should it be paid?

“There are a variety of fee structures available in the marketplace today. Most providers have flexibility in terms of how they structure the compensation tied to the administration of the plan,” Bennett says. “Some fee models are more dependent on asset-based revenue related to the plan; others are more dependent on fixed-dollar fees tied to the participant accounts that are administered; and there are varieties that fall between those two ends of the spectrum.”

“Looking at how plan sponsors typically pay our fees, I would say the majority, 90%, are paid by the plan sponsor,” says Matthew Schoneman, president at The Retirement Advantage Inc., a fee-for-service third-party administration (TPA) firm specializing in the micro- and small-plan markets, in Port Washington, Wisconsin. The remainder, he says, typically is paid through a combination fee arrangement, where the plan sponsor covers part of the cost, and part is taken from plan assets—meaning it is deducted directly from participant accounts.

Who Pays for the Plan’s Administrative/Recordkeeping Expenses
Not Covered by Related Investment Revenue?
 OverallMicro <$5MMSmall $5MM–$50MMMidsize >$50MM–$200MMLarge >$200MM–$1BMega >$1B
Shared responsibility20.6%17.1%22.4%21.5%21.0%23.0%
Our organization36.4%47.1%33.9%32.1%27.8%21.4%
Not applicable*12.0%7.3%11.1%18.1%21.5%13.6%

*All plan administration fees are paid from related investment revenue. Source: 2014 PLANSPONSOR Defined Contribution Survey

For example, he says, consider a $5 million plan. “Our total fee for that particular plan may be $2,800, and we’re getting 5 basis points [bps], or $2,500, in revenue sharing. So, we would apply that revenue sharing toward the $2,800 that was owed to us by the plan sponsor; then the net amount due to us would be $300.” Remaining fees are not automatically deducted from participant accounts; they can be paid by plan sponsor or by participants via two methods: “It can be done pro rata as a percentage of each individual’s account value or where an equal amount is deducted from each participant account.”