SURVEY SAYS: What Does Your Retirement Plan Cost?

September 16, 2004 ( - It's a complicated issue, but perhaps more complicated than it ought to be, and clearly a fiduciary's obligation is to consider the best interests of the plan's participants and beneficiary's, not just the package with the smallest price tag (though the two are not ALWAYS mutually exclusive).

This week we asked readers to tell us – on a per-participant basis – what their defined contribution plan costs run.

As a subset question, I had asked for some idea of respondents’ program size – unfortunately, I wasn’t specific as to how I wanted that stated.   Consequently, I got assets, participants, and assets and participants – but not consistently enough to apply to this week’s results.   I can say, however, that while larger programs did tend to dominate the least expensive programs, some good sized programs were well-represented in the more expensive categories.   And, as some readers noted, by asking for a per-participant cost, even a larger program, where fees could be a very small percentage of asset values, might have a very large per-participant cost figure.   True enough – but I’ve always found that while the expression of fees in basis points is the “norm” today, the per-participant number provides an interesting alternative perspective.

When it comes to that perspective, the most common response this week – and clearly we’ve got a lot of readers with their finger on the cost pulse – was more than $100/participant per year, cited by nearly 38% of this week’s respondents.   That’s right, and in a number of cases, WELL more than $100/year, “all in,” trust, recordkeeping, investment management, etc.     

One noted, “Our annual DC plan per head cost is currently an outrageous $170, and we are in the middle of an RFP trying to find a lower cost provider and better service (using the ever-so-helpful PlanSponsor articles and surveys, of course!)….I am presenting the results of the RFP to senior management tomorrow and this information will be helpful (well, unless everyone else comes back with a $5-$20 response!!!).”

“…it is over $500 per participant on an annual basis.   I think that your choices are extremely low,” said another.   “Did you really mean to include investment management costs?”   Or consider the perspective of the reader who said, “…the fees, without the participant paid internal fund management fees, are about $88 (f) per participant per year.   When you add in the fund fees (average slightly under 1% of assets), that number goes to $422.”

Another said, “We’re a very, very solid (g), our costs run over $100 per participant.   Don’t tell the owners.” 

There was, of course, a real diversity in responses.   The next most common response, cited by more than one in five respondents ( 22% ), was in the range of $35 to $50/participant per year.   However, at least one of these readers cautioned, “…but that is only a guess which really leads to h) no idea!”  Meanwhile, the third most common response, $5-20/participant per year, was cited by 10% .

Another 10% said their per capita fee was in the $50-$75 range, another 7% identified costs in the $75-$100/participant range (one of these cautioned, “Survey fees are going to be understated since many vendors hide their actual administration fees in various types of investment related fees.”) – and 2% – incredibly enough – reported costs of less than $5/participant per year (Section 457 plans appear to be especially fee efficient in this grouping, based on respondents that made a plan type identification).  

Not too surprisingly perhaps, roughly one in eight ( 12% ) said they had no idea (but several were heading off to check it out).

One reader noted, “Sounds like that article in the WSJ was written to drum up business for Consultants:-).   It should only take an hour or so to figure out what you are paying.”

But this week’s Editor’s Choice noted, “Despite my most diligent efforts, I never found out for sure how much our third party administrator made for handling our account…All that I know for sure is that every rock I tried to turn over was camouflaged and protected by a full armored division.”

Thanks to everyone who participated in our survey!