Surprising and potentially distressing findings from 401k and defined contribution consultant NEPC, at least when it comes to record keeping, trust and custody fees.
The firm is out with its Annual NEPC Defined Contribution Plan and Fee Survey, which looks at trends in the management of America’s employee-fueled retirement plans.
For the first time since 2010, the results show that fees for the three bucked the long-standing trend of declining year-over-year and remained flat.
The survey found that DC plans have a median record keeper, trust and custody fee of $59 per participant, a slight increase from $57 in 2016.
The asset-weighted average expense ratio for DC plans is currently 0.41 percent, consistent with the ratio reported in NEPC’s 2016 survey (0.42 percent).
However, both the median fee and average expense ratio have nonetheless dropped substantially since NEPC first conducted this study in 2006, when fees were $118 and the expense ratio was 0.57 percent.
“After consistently decreasing for the past seven years, it’s surprising to see fees flatten out even though we had been anticipating it,” Ross Bremen, partner and NEPC’s Defined Contribution Strategist, said in a statement. “Plan fees were the lowest in a decade last year, and now the trend has taken a breather. Low fees have been a source of mixed emotions. While sponsors are able to highlight their good work by reducing fees for participants, it’s done at the risk of hindering innovation and service. The race to the bottom is often a double-edged sword.”
Bremen added that the firm believes there’s a good chance fees will lower again next year.
“This projection is based on a few different factors, including, sponsors who have been considering share class and contracting changes but have not yet made them and significant numbers of vendor searches in progress that have not been captured.”
In addition to fees, survey respondents were also asked about plan design.
The results show that the median plan offers 23 investment options, compared to 22 options in 2016 and just 14 in 2006. Among those investment options, target date funds continue to be the most popular turnkey solution for plans, with 94 percent offering them.
Of those plans, 90 percent use TDFs as their qualified default investment alternatives and assets in TDFs are at an all-time high of 34 percent.
As “passively managed” investment options have garnered a lot of press, less than 1 percent of respondents were 100 percent passive. The findings indicate that 33 percent of plans include passive TDFs and 54 percent of plans have the makings of a passive tier to complement active options.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
