A new report offers a new level of transparency on recordkeeping fees paid by the large plan targets of excessive fee suits—and calls out a number of misleading claims and benchmarks used by the plaintiffs’ bar in bringing those suits.
According to the announcement from Encore Fiduciary, formerly known as Euclid Fiduciary, a division of Specialty Program Group LLC (SPG), they have just released a resource and risk management tool for large defined contribution plan fiduciaries: The Encore Fiduciary Large-Plan Recordkeeping Benchmark Survey. Authored by Daniel Aronowitz, President of Encore Fiduciary, this study is accompanied by a detailed whitepaper and provides a “comprehensive benchmark of the recordkeeping fees paid by sponsors of large defined contribution benefit plans.”
Survey Stats
The survey itself draws on data from over 2,500 large plans with assets exceeding $100 million, and over 1,000 participants for the years 2020, 2021, and 2022—and seeks to provide “clarity and understanding in the complex landscape of recordkeeping fees.” As such, it is much more robust than the industry surveys that have been cited by plaintiffs’ attorneys in making their excessive fee claims.
Indeed, the firm says the survey is more than just a response to the wave of fiduciary imprudence lawsuits seen in recent years. Rather, it provides data for plans fiduciaries to understand what similarly sized plans are actually paying for recordkeeping services, allowing plan fiduciaries to comply with ERISA’s obligation to act in the best interests of their plan’s participants.
As a provider of fiduciary insurance to large plans across America for plan sponsors that sponsor plans with assets over $100 million, Encore Fiduciary annually reviews thousands of rule 408(b)(2) and 404(a)(5) fee disclosures.
Recurring Litigation ‘Flaws’
The report notes that there are at least two recurring flaws in these excess recordkeeping fee claims: (1) they are based on inflated and false fee amounts; and (2) the lawsuits contain misleading benchmarks that do not accurately reflect what large plans actually pay for plan recordkeeping.
More specifically, the report notes that most of these lawsuits are based on inaccurate and inflated claims of the actual recordkeeping fees being charged to plan participants, because they are typically based on using Form 5500 fee information that is inflated with transaction fees that do not constitute plan recordkeeping fees. It further explains that “the only reliable proof of what plans actually pay is the recordkeeping contract or the quarterly fee disclosure provided by the plan recordkeepers to plan participants as required by the Department of Labor under Rule 404(a)(5).”
As for the second point, the report first comments that the most commonly used plaintiff law firm benchmarks are “distorting” small-plan recordkeeping statistics from the 401k Averages Book (which reflects a $200 million plan with recordkeeping fees of $5 or $13, “intentionally leaving out the truth that the same plans use indirect revenue sharing of over $150 per participant on average to fund recordkeeping fees.”
The report also notes that those suits allege that Fidelity has stipulated that its recordkeeping services are only worth $14-$21 per participant, though that stipulation in the discovery section of a suit involving Fidelity’s own plan “was never intended to reflect what large plans actually pay, but this has not stopped plaintiff law firms from misusing this stipulation.” Rather, the report says the Encore database “conclusively proves that most large plans, including $1B+ jumbo plans, pay more than $21 per participant for recordkeeping fees.”
As for the third point, the report notes that the suits compare fees from large plans with low fees, and that excess fee complaints commonly include a chart of 5 to 10 large plans with low recordkeeping fees. “These cherry-picked, random plans give a misleading perspective as to what the actual universe of large plans pay for recordkeeping fees.”
Final Assessments
The report concludes that:
- Fee compression for large-plan recordkeeping continues, and that fees continue to decline over the last five years and have continued from 2020-2022.
- The vast majority of plans with over $500 million in assets have per-participant recordkeeping fees with revenue sharing either eliminated or minimal.
- Plans under $250 million continue to use revenue sharing as the primary method of paying recordkeeping fees, but the percentage of plans without revenue sharing continues to decline as large plans move to fixed per-participant recordkeeping fees.
- Very few plan sponsors of large plans pay recordkeeping fees on behalf of plan participants.
- The premise of many, if not the vast majority of excess fee cases that most large $500m+ asset plans pay $35 or less is false.
You can download Encore Fiduciary's Benchmark survey and whitepaper here.
