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Participant Fee Equalization: Silver Bullet or Flash in the Pan?

A few providers are offering a service that levelizes fees for all participants and are claiming that this service will become popular and important with plan sponsors. The issue is that participants don’t pay a percentage of their assets like the plan does — they pay based on the revenue sharing in the funds they purchase, commonly through Sub TA or 12(b)(1) fees. So a participant who selects no revenue-sharing funds could pay nothing to subsidize the costs of the plan, leaving others to carry the load.

Currently, only three providers — Transamerica, John Hancock and OneAmerica — are offering the service to their mid-market clients, with Transamerica recently making it available to smaller plans.

Fee levelization must include a sophisticated technology solution, with fees calculated every day as account balances shift constantly through purchases, contributions and market fluctuations. Though no one has suggested that fee levelization is a legal or fiduciary requirement, it does come down to a question of fairness. It also raises the question of who owns the revenue sharing in the funds.

Are there other providers offering fee levelization that you know of? Do you think this service will become important to plans sponsors? Share your comment below.

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