EMPLOYER CONTRIBUTION: 100% on 6% plus 3% nonelective

CoBank has taken steps to ensure that revenue sharing does not lead to some 401(k) participants unfairly subsidizing administrative fees for others.

Back in 2010, the plan’s committee had a fee-benchmarking study done, and it “shined the light on revenue sharing and the imbalance it created,” recalls Robert O’Toole, chief human resources (HR) officer and chief of staff at CoBank, a national cooperative bank headquartered in Greenwood Village, Colorado. CoBank provides loans and other financial services to agribusinesses and rural power, water and communications providers. “The committee became aware that participants who chose to invest in funds that generated revenue sharing were paying all of the plan’s administrative expenses,” O’Toole says.

At that point, the committee began exploring options to return the revenue sharing to participants whose investments had earned that revenue. “Unfortunately, the committee soon discovered that recordkeepers had not developed the technology to equitably allocate revenue sharing,” O’Toole says. “It would take six years, and a new recordkeeper, for a viable solution to appear.”

The first steps to improving the situation came between 2014 and 2016, when the committee revamped much of the plan’s investment menu. “With the help of our investment adviser, Monticello Associates, we replaced many of the revenue-sharing options with either passively managed funds or lower-cost, non-revenue-sharing, actively managed options,” O’Toole says. The committee kept four investment options that provide modest amounts of revenue sharing, a decision based primarily on the fund managers and their strong performance track records, he says. The plan now offers 16 core investment options and a suite of six target-date funds (TDFs). 

The second big step toward improvement began during an April 2016 committee meeting. A representative from T. Rowe Price, by then the plan’s recordkeeper, announced that its system now had the functionality to allocate total revenue sharing back to participants whose investments generated the revenue, says Ron Lamberson, CoBank’s vice president, group benefits and employee relations. “The committee immediately agreed to adopt T. Rowe Price’s new revenue-sharing allocation capabilities, with the understanding that all revenue sharing—and not just the excess above the recordkeeping fees—would be allocated to participant accounts,” he says. Implementation occurred last November.

Now, after each quarter ends, T. Rowe Price calculates for each eligible participant the average daily account balance in each of the revenue-sharing funds and multiplies the average balance by the revenue-sharing credit rate—adjusted for the quarterly allocation—associated with each fund. These amounts then get credited to each participant’s account and invested according to the person’s current investment elections.

“We have finally, in effect, created a zero-revenue-sharing investment menu,” O’Toole says. “This was the solution the committee had been seeking since 2010, despite the fact that the remaining, ongoing revenue share would no longer be available to offset recordkeeping fees.”  

Further, with employees’ retirement outcomes in mind, CoBank decided to start paying all plan administrative expenses as of 2016. “Even a small difference in fees can have a significant impact on a participant’s account balance, over time,” O’Toole says. That knowledge, he says, “led us to agree that the company would become responsible for the plan recordkeeping fees, as well as all other plan administrative expenses.” —Judy Ward

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