PLANSPONSOR - November - December 2023 - 19

Vendor Management
Besides
benchmarking,
vendor management
is an important approach plan sponsors
should use to make sure they get the most
value from their providers.
" You can't just turn over the reins, even if
you have a fully bundled service arrangement
with a recordkeeper, " Reed says. " You may be
a getting a whole suite of services, including
compliance [and] administration, or a website,
that you and your participants are paying for.
But sometimes, some of those services either
the plan sponsor and participants aren't using
or the recordkeeper never provided. "
Reed says that could present an opportunity
for cost-cutting, since plan sponsors
should not pay for services they do not use. For
example, a bundled package might include
communication services, but if a plan sponsor
prefers to handle messaging in-house or has
a preferred communication provider, it makes
sense to ask for a discount on that bundle.
Plan sponsors should also regularly evaluate
whether their recordkeeper charges a flat
fee per person or an asset-based percentage fee
and consider whether switching to the other
option might make more sense, Reed says.
The availability of flat-fee billing, while
not right for all plan sponsors, is growing:
In 2021, just more than one-quarter of firms
offered such an option to plan sponsor clients,
while last year, that number grew to 39%, says
data from Advyzon.
In general, expenses for smaller plans
tend to be higher and purchase less customization,
but there has been some movement
toward making fees more transparent.
What the Plan Pays
Vs. What the Participant Pays
" FROM A FIDUCIARY perspective, monitoring all plan costs is important,
no matter who's paying the fees, " says Richard Reed of the Segal Group.
Typically, participants pay costs associated with the administration of
their accounts, including recordkeeping fees and expenses associated with
their investment choices, Reed says. When it comes to settlor expenses-business
expenses such as the cost of plan design consultants or lawyers-the
company, not the plan, must bear the expense, per Department of Labor rules.
" We would always suggest that participants pay transaction fees for
things such as loans or hardship withdrawals, because not every participant
uses those services, " says Robin Credico of WTW.
How plans break down fees may also depend on how their providers assess
fees. That is another important factor for sponsors to consider when evaluating
plans. Almost one-third (31%) of plans have a fixed-basis-point fee arrangement,
while 27% pay a fixed-dollar amount per head, according to Cerulli
Associates. Meanwhile, 21% pay a bundled fee, in which all recordkeeping fees
are covered by a portion of the expense ratios, without a contracted fee level,
and 20% pay a hybrid of fixed-dollar amount per head and basis point fees.
" One of the conversations our folks often have, because [defined contribution]
plans in the public space tend to have lower balances, is whether it's fair
to have a $25 per head for people with a $5,000 median balance, " says Matt
Petersen of the National Association of Government Defined Contribution
Administrators. " But if you do it as a percentage of assets and someone has a
$500,000 balance, they get hit with the higher fee. "
Sponsors can choose to pay for any additional costs. One factor that might
contribute to this decision is the tax deductibility of such payments. While
costs incurred by a company may create a tax deduction for the business,
payments made via plan assets are ineligible for tax deductions.
Plan sponsors may also opt to pay extra fees on behalf of participants,
since, when participants pay, it reduces their account balance.
" If fees are paid by the sponsor, it eliminates this reduction and results in
greater participant savings, " Reed says. -BB
" For a long time at middle-market and smaller plans, the fees
were hidden, so you would get an investment, and then you'd get
revenue sharing, and that would pay the recordkeeper, " Credico
says. " But as plans got bigger, the cost of administering the plan
did not get bigger without a change in the number of people. "
Forward-Looking Agreements
For plan sponsors that expect significant growth in the future
due to a merger or other factors, it may make sense to check the
market to determine whether the larger, combined plan might
qualify for better rates or enhanced service.
" We see a lot of RFP questions that say, 'We are at 7,000
units, but if we have an acquisition, could we put a tiered
schedule in place so we don't have to reopen the contract at
every turn?' " Voya's Vinson says. " Then the client can grow
materially throughout the life of the contract and get better
pricing along the way. "
In addition, Vinson says, many requests for proposals
include key performance indicators within the contract that
focus not only on quantitative targets, such as engagement
milestones or completed transactions, but also on qualitative
aspects of the plan.
" They're including things such as, 'Does my HR [human
resources] team feel good?' " he says. " 'Are we getting good
service and thought leadership from our client manager?' 'Are
day-to-day operations going well?' " -Beth Braverman
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PLANSPONSOR - November - December 2023

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