Scrutinizing Plan Fees Can Save Plan Sponsors and Participants Money

One adviser explains that if a plan has $1 million in assets, even a single basis point reduction in fees among 20 participants can, on average, save each participant $5 a year.

By Lee Barney | July 25, 2017
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Advisers have the ability to reduce a retirement plan’s fees by as much as 50%, says Julie Ward, vice president, consulting at NFP’s retirement division in Aliso Viejo, California.

Nathan Boxx, a financial adviser at Fort Pitt Capital Group in Pittsburgh, Pennsylvania, agrees, but thinks there is the potential for even greater reductions: “In my experience, particularly for plans that have not been looked at for a number of years, you can take overall expenses from 4% all the way down to 1% to 2%, making this a significant savings because these plans were not properly managed or given good advice from their previous adviser. However, even making a one basis point savings over a 20-year period can be the difference between a participant retiring at age 65 or 70.”

Ward explains, “A savings of 1bps on any portion of the plan fees is calculated based on the size of the plan based on assets. For example a 1bps (.01%) fee reduction on a $1,000,000 plan would be $100. A 1bps fee savings on a $100,000,000 plan would be $10,000.  It is relative to the plan size in terms of the savings in dollars. The larger the plan, the greater the dollar amount and impact.”

Mike Zovistoski, managing director at UHY Advisors NY, Inc., in Albany, New York, further explains that if a plan has $1 million in assets, a 1 basis point (1bps) reduction is $100, and if there are 20 participants in the plan, on average, each participant would save $5 a year.

Ward says it is important to look at both the percentage savings and dollar amount savings in context with the plan size, demographics and service needs.

There are four main areas that sponsors should ensure their advisers are paying attention to with regards to a retirement plan’s fees, says Zovistoski: investment, recordkeeping, third-party administration (TPA) and adviser.

Right now, sponsors are very aware of the need to find the lowest share class option for the mutual funds on their platform, Zovistoski says. “Once you have a fund lineup with the lowest share class possible for the size of the plan, in terms of assets, as the plan continues to grow in size, even lower share class funds may become available,” he says. While a plan may not review its recordkeeping fees until three or four years have passed, it probably should review its investment share class prices annually, Ward says.

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