Little surprise, 401(k)-consulting giant NEPC finds revenue sharing agreements on the wane, as fixed-dollar agreements with service providers rise in the wake of the DOL’s fiduciary rule.
“Plan sponsors continue to look for ways to promote fairness and transparency,” Ross Bremen, a partner and NEPC’s Defined Contribution Strategist, said in a statement. “The majority of plans in our survey are now contracted on a fixed dollar basis. While most plans still have some level of revenue sharing, we are seeing plans of all sizes looking for ways to reduce reliance on it.”
However, he cautions that the current “race to the bottom” in terms of fee reductions isn’t necessarily all good, noting that at some point service and innovation could suffer, something that is not in the participants’ best interests.
According to Bremen and the organization:
- The asset-weighted average expense ratio for DC plans is currently 0.42 percent versus the 2006 level of 0.57 percent.
- Eighty-two percent of plans have re-contracted their record-keeping fees since 2013, which has led 51 percent of plans with to have a fixed-fee record keeping arrangement.
- In terms of plan design, the survey shows that the median number of plan investment options for participants is 22, the same as last year.
- Among those investment options, target date funds are still the cornerstone of defined contribution offerings, as these turnkey solutions are available in 94 percent of plans.
- Fully 88 percent of plans use TDFs as their qualified default investment alternatives.
- While much has been written about the growing popularity of “passively managed” investment options, virtually no respondents in the Survey are 100 percent passive.
- Lifetime income offerings are now offered by five percent of plans versus none in 2012.
- The percentage of plans offering stable value funds remains unchanged at 47 percent, the same level as 2012. Prevalence didn’t decline significantly following the credit crisis and it hasn’t increased as a result of low interest rates and money market reform.
“The lifetime income figure is one to watch,” Bremen added. “There is no question that it is taking time for sponsors to get comfortable with the current solutions, but the plan sponsor has become much more engaged with their employees’ DC options in the last decade-plus, and we predict this trend will continue.”