PLANSPONSOR - June/July 2019 - 7

Industry Analysis
Revenue Sharing on the Decline?
R
evenue sharing allows a plan sponsor
to pay all or a portion of retirement
plan administrative fees
through payments received from the plan's
investment options. Revenue-sharing fees
are those non-investment-related fees,
such as 12b-1 fees, that are added to the
fee's expense ratio. The amount of revenue
sharing can vary from one investment
option or share class to the next, meaning
participants can pay varying proportions of
the plan's administrative fees.
We analyzed three data points from
recent PLANSPONSOR Industry Reports
to see how revenue-sharing usage is
trending; in the charts at right, we drill
down on plans with assets of less than
$50 million and of over $200 million.
When sponsors were asked whether they
use excess fund revenue to pay recordkeepers,
the responses this year suggest
that fewer small and midsize plans use revenue-sharing
funds than they did last year.
Some plans use fee equalization to
ensure that their participants all share
in the plan's administration fees. The
number of plans of all sizes reporting " Yes "
to having a policy to address fee equalization
significantly increased from 12.9%
to 31.7% over the past five years, and in
every market. In addition, the percentage
of plans that responded " Unsure/Don't
know " has significantly decreased over the
past five years in all markets. Both results
likely correlate to an increase in awareness
about the potential issues arising
from making revenue-sharing payments.
Adoption is lowest among micro plans.
The percentage of plans with fee equalization
strategies might, in practice, be higher
among large plans, as these are more apt to
respond that they do not use investments
with revenue sharing and therefore have
no need for a fee equalization policy.
Plans using an Employee Retirement
Income Security Act (ERISA) account to
allocate revenue sharing can be a proxy
for addressing a fee equalization policy.
Use of ERISA accounts has risen over the
past five years, while the percentage of
2019
Yes
No
Unsure/Don't know
2018
2017
2016
2019
2018
sponsors that " Don't know " whether their
plan employs one has gone down. This
policy is very common in larger plans but
far less so in smaller plans. These results
indicate that there has been an increased
emphasis on fee equalization. -PS
Lineup Has Mutual Funds That Pay 12b-1 and/or Sub-Transfer
Agent Fees to Recordkeepers/Third-Party Administrators
Plans With Assets <$50mm
Plans With Assets >$200mm
2017
2016
26.0% 27.4% NA NA 46.5% 46.1% NA NA
22.5% 22.4% NA NA 36.5% 35.9% NA NA
51.5% 50.2% NA NA 17.0% 18.0% NA NA
Organization/Plan Has a Policy to Address Fee Equalization
Plans With Assets <$50mm
Plans With Assets >$200mm
2019
Yes
No, but plan to have
one within a year
No, but may develop
one in the future
No
Unsure/Don't know
2018
2017
2016
2019
2018
2017
2016
24.3% 23.8% 16.3% 12.1% 41.4% 41.2% 36.5% 24.6%
4.6% 4.3% 2.0% 2.5% 8.2% 8.2% 4.9% 6.8%
15.5% 13.2% 9.3% 12.2% 17.5% 18.5% 14.5% 20.3%
28.7% 35.2% 36.7% 29.8% 18.3% 18.5% 27.4% 18.0%
27.0% 23.5% 35.7% 43.3% 14.6% 13.6% 16.6% 30.3%
Has an ERISA Account to Capture Appropriate
Revenue-Sharing Credits
Plans With Assets <$50mm
2019
Yes
No
Unsure/Don't know
2018
2017
2016
2019
Plans With Assets >$200mm
2018
2017
2016
39.7% 39.6% 35.3% 29.4% 62.8% 64.0% 60.2% 56.2%
38.9% 36.4% 33.6% 29.4% 28.6% 25.9% 30.6% 29.5%
21.5% 24.0% 31.0% 41.2% 8.6% 10.1% 9.2% 14.3%
Source: 2016 - 2019 PLANSPONSOR Industry Reports
NA = not asked in the year given
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PLANSPONSOR - June/July 2019

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