PLANSPONSOR - February/March 2018 - 57

with surveys or consultant databases.
According to the 2017 PLANSPONSOR
DC Survey, on average across all plan
sizes, 78% formally review administration
costs/fees on an annual basis.
Every five to seven years, however,
many plans undertake a search for a new
recordkeeper, Bremen points out. " When
a vendor search is conducted, the incumbent
firm is retained about half the time.
The vendor may not be replaced, but the
sponsor will negotiate for lower fees or
enhanced services, and many sponsors
get lower fees just by asking, " he says. In
addition to a steady lowering of fees, the
structure showing how they are charged
and allocated has become more transparent.
Revenue sharing among investment
managers and fund sponsors is still
prevalent, says Bremen, but more plans are
finding ways to reduce or eliminate it.
" The downward pressure on recordkeeping
fees is not new, although things
may be flattening a bit, " says Dave Gray,
head of retirement products and solutions
at Fidelity Investments in Boston.
He explains the business: " Three factors
are key to long-term competitiveness.
One is scale, which is essential to driving
down costs. The second is efficiency-
with a focus on back office systems and
processes-and more efficient infrastructure.
Third is digitization of service, which
makes it easier for customers to complete
their transactions in the ways they want. "
All of that competition and latestgeneration
capital spending make DC
recordkeeping a difficult market. " There's
been quite a bit of merger and acquisition
activity in the last decade, and several large
firms have left the business, " Bremen says.
" I've been a recordkeeper, and I have
an appreciation for what it takes to do it
right, and it's worth paying for, " says
Martha Tejera, head of plan consulting
firm Tejera & Associates, from her winter
headquarters in Tucson, Arizona. " If the
recordkeeper has to compete on just the
recordkeeping fees, it's a hard mix. I'm
seeing recordkeepers being more selective
about the opportunities they pursue
Defined Contribution Plan Fees
Investment Fees
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
Source: NEPC, Defined Contribution Plan and Fee surveys, 2012 - 2017
2012
2013
2014
and whether there is opportunity for other
revenue sources. " She cites managed
account services and recruiting rollovers
into individual retirement accounts
(IRAs) as such supplementary products.
" I work with one very large plan
where the revenues generated through the
managed accounts were four times those
of the recordkeeping fees, " Tejera says.
" Based on the value of what's being delivered,
those fees may be hard to justify. "
" With managed accounts and financial
advice, there has been less transparent
disclosure of fees and a couple of associated
lawsuits, " notes Robyn Credico, leader
of the North America defined contribution
practice of Willis Towers Watson, in
suburban Washington, D.C. " Sponsors
have to understand what the fees are and
who is being compensated. Are the fees
reasonable and, if the managed account
provider is not part of the recordkeeper,
what fee sharing is involved? Every time
we manage to get transparency on fees, "
she laments, " something else pops up. "
Are recordkeeping fees likely to
resume their descent? " Based on the
number of recordkeeper searches that we
know are out there, it is a reasonable expectation
they could go lower, " Bremen says.
On the other hand, " there is an element of
'fee fatigue.' Sponsors have been diligent
for such a long time, and the data show
that they are looking at other areas.
2015
2016
2017
" For instance, " he continues, " in a
flash client poll on improving retirement
readiness, 55% cited one-on-one financial
assistance, while 14% chose lower fees. "
" Originally the pressure came
from the sponsors pushing back on the
providers, " says Credico. " But it's tough to
make money only on recordkeeping, and
now some providers are pushing back,
saying they have to hold their fees to stay
in the business. "
" My clients emphasize to the recordkeepers
that they want to pay for recordkeeping, "
Tejera says. " If [administration
fees] go down too far, the resources will
shrink, and there will be less-qualified
people and less-robust tools. " -John Keefe
KEY POINTS
* For about the last decade, there
has been a steady lowering of
investment and recordkeeping
fees. Generally, the way fees are
structured and allocated within
a DC plan has become more
transparent.
* Recordkeepers are seeking
opportunities for other revenue
sources, such as managed
accounts and participant
rollovers to IRAs, to compensate
for charging lower fees.
PLANSPONSOR.com February-March 2018 57
Recordkeeping Fees ($mm)
$120
$100
$80
$60
$40
$20
0.57%
$118
0.52%
$80
0.49%
$70
0.46%
$64
0.42%
$57
0.41%
$59
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