Large Plan Recordkeeping Fees Snap ‘Losing’ Streak

A new report finds that recordkeeping, trust and custody fees didn’t drop for the first time since 2010. Then again, they didn’t increase, either.

According to the 12th Annual NEPC Defined Contribution Plan and Fee Survey, recordkeeping, trust and custody fees bucked the longstanding trend of declining year-over-year and remained flat.

The survey found that DC plans have a median recordkeeper, trust and custody fee of $59 per participant, a slight increase from $57 in 2016. The asset-weighted average expense ratio for DC plans is currently 0.41%, consistent with the ratio reported in NEPC’s 2016 survey (i.e., 0.42%).

However, both the median fee and average expense ratio have dropped substantially since NEPC first conducted this study in 2006, when fees were $118 and the expense ratio was 0.57%.

The report’s authors caution, however, that they believe there’s a good chance fees will lower again next year, based on a few different factors, including sponsors who have been considering share class and contracting changes but have not yet made them and significant numbers of vendor searches in progress that have not been captured.

Revenue ‘Sharing’

Three-quarters (77%) of plans use some form of revenue sharing, but the report says they are looking for ways to give excess revenue back to participants. Smaller plans in particular are now beginning to eliminate revenue sharing all together, according to the report.

Other findings include:

  • More than two-thirds (70%) of plans use revenue sharing to cover fees; however, almost a third (29%) use a flat dollar charge to pay fees instead.
  • Just 5% of plans have excess revenue retained by the recordkeeper; three-quarters (73%) use it to offset fees; and another third (33%) return it to participants.
  • Looking specifically at non-bundled plans, 60% use revenue sharing to offset fees, 24% return revenue sharing dollars to participants, and another 30% have no revenue sharing.

Those conclusions came from the survey of large plan sponsors: 123 respondents from DC plans with $138 billion in aggregate assets, representing 1.5 million plan participants. The average plan size of the respondents was $1.1 billion and each plan had more than 12,000 participants.

Plan Design

In addition to fees, survey respondents were also asked about plan design. The results show that the median plan offers 23 investment options, compared with 22 options in 2016 and just 14 in 2006. Among those investment options, target date funds continue to be the most popular turnkey solution for plans, with 94% offering them. Of those plans, 90% use TDFs as their qualified default investment alternatives and assets in TDFs are at an all-time high of 34%.

Less than 1% of respondents were 100% passive. The findings indicate that 33% of plans include passive TDFs and 54% of plans have the makings of a passive tier to complement active options.

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