PLANSPONSOR - June/July 2019 - 19

paying any administrative fee. "
Lander encourages all of her sponsor clients to stop using
revenue sharing. " I believe that, over time, all money managers
will migrate to zero-revenue shares. However, there are still many
funds out there that don't have zero-revenue-share funds, " she
says. " But every quarter, when we review a plan's funds, we ask,
'Are there any funds on the menu that still have revenue, and has
the manager introduced zero-revenue shares in the past quarter?' "
Wintrust stopped using revenue sharing in its client relationships
about five years ago, and its plan clients switched to
explicit administrative fees, Peluse says. " This is going to be the
model, " he says of the approach.
The biggest challenge in making this conversion is helping
participants understand that they have been paying administrative
fees already and this is not a new fee, Peluse says. " We've
" If you don't have a system
for showing that you're
fulfilling your fiduciary
responsibility in regard to
fees, you won't be in a good
position if you get sued. "
found that there were many misconceptions about fees. So we
walk participants through a basic scenario of how they used to
pay recordkeeping and advisory fees and how revenue sharing
subsidized those fees. Then we walk them through what the fees
will look like when there is no revenue sharing. "
A Move Toward Flat Fees
Eighty-three percent of plan sponsors surveyed for the Callan
Institute's 2019 Defined Contribution Trends survey utilize an
explicit per-participant dollar fee or explicit asset-based fee to
pay for plan administration expenses. Use of an explicit assetbased
administrative fee fell from 34.7% of plans in 2017 to just
19.2% last year.
Lander still sees an asset-based administrative fee as a better
option than a flat fee. " With per-capita [flat-fee] pricing, the
people with the highest balances-oftentimes, the more highly
compensated employees-pay far less in fees as a percentage of
their balance than newer, often younger employees, or participants
with smaller balances. " In her opinion, it is unfair to have
those workers pay higher proportionate fees.
Use of an explicit per-participant dollar fee rose from 54.7%
in 2017 to 63.8% last year, Callan's survey found. " To keep the
expenses manageable, we think a per-head fee is a better way
to go, " Griffin says. " Asset-based fees typically equate to paying
more over time, because inevitably the balances will grow. "
Participants also understand a flat fee more easily than a basispoint
fee, he adds.
Among its recordkeeping clients, Vanguard sees utilization
of the flat per-participant administrative fee as the prevailing
approach, Stinnett says.
" Many plan sponsors like the transparency of a flat fee,
because everybody pays the same amount, " Tyson observes. " The
DOL [Department of Labor] has been pretty clear that there's no
one right answer on how to do it. As a sponsor, you need to know
your participants and what's best for them. But the trend is definitely
toward per capita. "
Fee-Monitoring Best Practices
Among other participant lawsuit allegations has been that
using an asset-based recordkeeping fee is unfair and is a fiduciary
breach by the sponsor, but this, too, has yet to succeed,
Buckmann says. " What the courts are looking for in these cases
is evidence that you've done an investigation to ensure that your
administrative fees are reasonable and that the services you've
received are valuable for your participants, " she explains. " If you
don't have a system for showing that you're fulfilling your fiduciary
responsibility in regard to fees, you won't be in a good position
if you get sued. "
Asked how often they formally review actual administrative
costs and fees, 75.8% of sponsors said annually, according to the
DC Plan Benchmarking Report. Another 8.7% said every one to
two years, while 7.8% said every two to three years, 1.9% every
three to five years, and 0.7% every five-plus years. Additionally,
5.1% of survey respondents said they never review actual administrative
costs or fees.
To benchmark plan fees annually has emerged as a best
practice. " We provide it as part of our annual review, " Peluse
says. " It's a nice check-in for the sponsor and us: Here's where
the market was last year, and here's where it is this year. "
Atlanta Retirement Partners, too, does fee benchmarking
annually and thinks carefully about whether to approach a recordkeeper
to renegotiate the fee, Griffin says. If a client plan has
reasonable fees-say, within 10% to 20% of the current market
average-but provides really good services at both the participant
and sponsor levels, he typically recommends not immediately
trying to renegotiate the fee. " We're going to keep an eye on it, but
we are not holding the recordkeeper's feet to the fire. We've seen
how, if you just beat recordkeepers up for low cost, low cost, low
cost, the end result is a degrading of the services. "
Plan fees got the highest ranking among sponsors as to
their potential areas of focus for the next 12 months, the Callan
survey found. They ranked higher than last year's biggest
priority, retirement readiness. " A majority of plan sponsors now
benchmark their fees annually, " McAllister says. " And we see
many plan sponsors going out to market on an RFI [request for
information] basis every three years. " -Judy Ward
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