You hear lots of talk about who those fees are paid to, and what they are paid for, and who is paid how much for what.
This week I asked readers if they (you) benchmarked your retirement plan’s fees? And you know what?
Just over half (52.5%) of this week’s respondents said they do, while another 15% said they have, but “it’s been awhile”.
Another 17.5% admitted that they hadn’t, and the remaining respondents (just under 15%) opted for “not yet.”
As for how that benchmarking is taking place, a clear plurality (48.3%) cited doing so with the help of their plan adviser, though nearly as many (47.6%) did so via industry surveys.
More than a quarter (27.6%) did so via a request for information/proposal (RFI/RFP), and 17.2% did so via a fee benchmarking service (more than one response was permitted).
On that topic, plan sponsor respondents did report some issues with some of the benchmarking services. One noted “For the last 10 years our plan fees run approximately .0075. We think this is very reasonable. We have been contacted by a company who wants to provide a free benchmarking service and they practically threaten that they are going to report us to DOL if we don't participate.” Another said that they used one to “check the fees for my 401(k) account and they reported fees almost double the actual fees. I have no idea how they try to validate their information, but there are clearly accuracy issues.”
As for the remaining 13.8% who opted for “other”, they were using other materials, including the 401(k) Answer book, and a combination of the above.
Other observations included:
I like the method of calculating a benchmark cost against a plan of similar size and investment make-up. Makes me think about what factors make our plan lower or higher cost. CEM is impartial.
A plan advisor dedicated to this market should be able to provide a variety of benchmarks: industry from surveys and benchmarking service, and specific competitive benchmarks through RFP.
I think in order to be a prudent plan sponsor, plans need to be review every 1-2 years to make sure they are in line with industry trends.
The only way to accurately benchmark fees and services is to market the plan. No database can take into account all of the variables in a plan and the market conditions at the time of the bid.
But this week’s Editor’s Choice goes to the reader who noted, “In examining fees, it used to be that you'd say tomato and I'd say potato. At least with new fee disclosure requirements you say tomatoe and I say tomato.”
Thanks to everyone who participated in our survey!
EDITOR'S NOTE: If you've had experiences (good or bad) with fee benchmarking services, and would be interested in sharing that experience, please email me at firstname.lastname@example.org. Confidentiality guaranteed.