According to a Spectrem Group study, the proportion
of plan sponsors believing they pay no fees dropped to 9%
from 23% in 2005. Likewise, the average estimated amount
of fees paid to plan providers is 123 basis points this
year compared to 107 bp in 2005, the study report
said.
Among those who do pay, the largest proportion
(37%) say they pay less than 1% of plan assets annually;
45% report paying between 1% and 2% of plan assets; and
the remaining 8% pay more than 2% of plan assets.
Sponsors estimate that participants pay an average
of 99 bp in fees to plan providers.
The largest proportion (31%) say participants pay
less than 0.5% of their account balances annually. As the
possible amount paid by participants goes up, the
percentage of sponsors selecting that amount decreases
until only 6% say that participants pay more than 2% of
their account balances annually.
On average, plan sponsors estimate they pay
approximately 35 bp for the services of their advisers
and consultants. Sponsors of the largest plans estimate
their fees for advisory services at 46 bp.
However, only half of plan sponsors are confident
they fully understand the fees charged by their advisers
and consultants, and just 43% are confident they fully
understand the fees charged by their plan providers. In
addition, only half of plan sponsors are satisfied that
they are receiving full value for the fees they pay for
both advisors/consultants and plan providers.
Overall, 63% of plan sponsors say they are
knowledgeable about payments made to affiliates and
vendors of their plan provider in connection with the
delivery of services to their plan. A similar pattern
emerges when sponsors are asked if they are knowledgeable
about allowances built into the fees they pay for the
purpose of providing compensation to brokers or other
intermediaries. The proportion of sponsors saying they
are knowledgeable is higher among sponsors of larger
plans.
Spectrem found that overall, 84% of sponsors
receive a written fee disclosure statement from their
plan providers and 88% receive one from their advisers
and consultants. About half of all plan sponsors rely on
their plan provider or the adviser who sold them the plan
for any analysis of fees paid. One-third analyze fees
using in-house staff and the remaining 17% use an outside
consultant or a TPA.
In addition, the study report said outside advisers
and consultants are used to assist in plan decisionmaking
by about two-thirds of plan sponsors, with about half
using a commission-based adviser or consultant and half
using a fee-based adviser or consultant.
Sponsors of plans where Human Resources leads the
retirement plan decision process are more likely than
other sponsors to use the analysis of the adviser who
sold the firm the plan and less likely to conduct the
analysis in-house.
Spectrem noted that the information provided to
sponsors needs to be compared to that which will be
required to comply with the new regulation that will go
into effect on January 1, 2009.