PLANSPONSOR - November - December 2023 - 18

COVER STORY
live in a very litigious society, so that's nearly impossible, " says
Jay Vinson, a vice president of wealth solutions and client relationship
management at Voya Financial Inc. in Westwood,
Massachusetts. " It's up to the sponsor to have a process for evaluating
expenses and fees. "
To that end, the fiduciary committee should have a governance
charter that includes monitoring fees and eliminating
wasteful costs, Reed says.
Benchmarking in a Rapidly Evolving Market
" The market is evolving rapidly, so it's important to work with
someone who has a pulse on that evolution, " says John Jurik, the
retirement plan consulting national practice leader at Arthur J.
Gallagher & Co. in Elmhurst, Illinois. " It's a full-time job to
keep up with what's going on with all the providers in terms of
their services and their pricing. "
Jurik recommends building fee examination into a service
plan with a consultant, so plan sponsors are not simply thinking
about fees on an ad hoc basis. " Plan sponsors have a lot on their
plates, " he says. " If you don't have the cadence built in, you might
miss out on opportunities to leverage something such as fee
leveling or revenue-sharing changes from your provider. You
really can't set it and forget it. "
The Role of PEPs
ONE OPTION that smaller plans might consider to cut costs is moving to a
pooled employer plan. The Setting Every Community Up for Retirement
Enhancement Act of 2019 paved the way for PEPs, which allow smaller sponsors
to join together to access the scaled pricing and administrative benefits available
to larger plans. Scaling their plans might also permit these sponsors to
add more cost-efficient investments, such as collective investment trusts, which
have become a much larger part of the market in recent years.
Plan sponsors should keep in mind, however, that if they are making
changes to plan design with an eye toward cost, they still need to budget for the
communication and education necessary to explain the changes to participants.
" With CITs, for example, they're trying to replicate the mutual fund strategy,
but the oversight and accessibility of information is different, " says John Jurik,
of Arthur J. Gallagher & Co. " They don't have a ticker that you can just plug into
Yahoo Finance. "
The variation in fees charged to small and large plans means those that
have recently changed in size, either due to mergers or an increase in balance,
need to pay particular attention to the break points at which they might become
newly eligible for a lower rate.
" The 401(k) recordkeeping administration industry is like many others,
and scale plays a big part in it, " says Jay Vinson of Voya Financial Inc. " The
more units, or employees, that are engaged in their 401(k) accounts, usually
that lowers costs, since cash flow is higher and more contributions are
coming in. " -BB
18 PLANSPONSOR.COM November - December 2023
According to the 2023 PLANSPONSOR Defined Contribution
Survey, 67% of plan sponsors formally review actual administrative
costs or fees annually, while 58% formally evaluate their
defined contribution providers annually.
" Even if you don't want to leave your recordkeeper, it's a
good practice to look at the market and make sure your services
are consistent with what you're paying, " says Robin Credico, the
North America defined contribution practice leader at WTW in
Las Vegas.
Of course, benchmarking can be a labor-intensive process,
requiring access to good data about similar plans. Matt Petersen,
executive director of the National Association of Government
Defined
Contribution
Administrators,
headquartered
in
Lexington, Kentucky, suggests that plan sponsors that can afford
to do so work with a consultant for benchmarking.
That is because recordkeepers and other providers may all
have a different approach to breaking down their fees, and, even
with increased calls for transparency, it can be difficult for plan
sponsor committee members without experience in the field to
conduct a true apples-to-apples fee comparison on their own.
Focus on Value
For smaller plans that cannot afford a consultant, it is still
important for committee members to educate
themselves about fees and have conversations
with current and potential providers to better
understand the market, Petersen says.
Those conversations should focus on
the bottom-line cost of the plan, and the value
participants get for those costs. In addition to
investments and performance, that value might
include additional financial wellness tools and
information. When comparing costs, the goal is
not to find the lowest cost, but to make sure a
plan is getting value for the rate and meeting the
fiduciary standard of a " reasonable " fee.
" You need to make sure that your costs are
reasonable, and you need to look at them based
on both asset class and asset size, " Credico says.
" I can get an index fund and say it's less expensive,
but in some asset classes, active management
outperforms. "
Plan sponsors that believe they might
realize cost savings through benchmarking can
consider doing the process with a legal expert
who can provide attorney-client privilege and
careful communication.
" If you have fee savings, that may imply that
you were charging your participants too much
in the past, " Credico says.
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