Not All $5 Million Plan Fees Are the Same

Data from the 401k Averages Book suggests that a plan’s average account balance is one of the key drivers in determining what 401(k) fees a plan sponsor will pay on average.

When plan expenses are expressed as percentage of assets, the data shows that the average total plan cost for the smaller average account balance plan is 0.29% higher than the plan with the higher average account balance, according to a 401k Averages Book Special Report.

Data from the 401k Averages Book shows that net investment-based fees for plans ranging between 25 and 2,000 participants with varying size account balances account for between 14% and 65% of total plan fees. That is, of course, a wide range, but the report notes that one of the biggest drivers of whether a plan is at the high or low end of this range is the size of its average account balance — that is, total plan assets being equal, plans with higher average account balances will have net investment-based fees account for a greater percentage of total plan fees.

The report notes that for a plan with $5 million in assets and a $50,000 average account balance, net investment fees account for 42.54% of total plan fees, while a $5 million plan with a $10,000 average account balance will have net investment fees account for 34.62% of total fees.

Additionally, while both plans have $5 million in plan assets, total investment and bundled fees are higher for the plan with the smaller average account balance, and the data shows that the plan with $5 million in assets and a $50,000 average account balance has total plan average investment expenses of $58,500. That is in comparison to $63,500 for the plan with $5 million in plan assets and a $10,000 average account balance.

However, when combined, revenue sharing and recordkeeping administration account for more than half of total plan costs for both size plans. Specifically, when recordkeeping/administration and trustee fees are accounted for, the total bundled plan cost is $62,325 for the $50,000 average account balance plan versus $78,097 for the $10,000 average account balance plan.

The fee benchmarking data in the 401k Averages Book shows that the average investment cost as a percentage of assets for a plan with $5 million in assets and a $50,000 average account balance is 1.17%. This figure is lower than that of the plan with $5 million in assets and a $10,000 average account balance, which weighs in at 1.27%.

When recordkeeping/administration and trustee fees are accounted for, the total bundled plan cost as a percentage of assets for the plan with a $50,000 average account balance is 1.25%. That is in comparison to 1.56% for the plan with a $10,000 average account balance.

The range between high and low for total plan costs is 1.23% for the $50,000 average account balance plan, while the range for the $10,000 average account balance plan is 1.42%.

The high end of the range for the larger average account balance plan is significantly lower than that of the smaller average account balance plan. For the plan with a $50,000 average account balance, the high total plan cost as a percentage of assets is 1.69%, compared to 2.15% for the plan with an average account balance of $10,000.

The report notes that the median total plan cost for the plan with a $50,000 average account balance is 1.28%. That is in comparison to 1.59% for the plan with a $10,000 average account balance.

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One Comment

  1. url url'>Tom O'Brien
    Posted August 22, 2017 at 12:21 pm | Permalink

    It turns out that the cost of RK & Admin has nothing to do with average account balances. A plan with 100 participants and $1 MM in assets (should) pays the same for RK & Admin as a plan with 100 participants and $10 MM. If so, the $10 MM plan has lower all-in costs WHEN REPRESENTED as a % of assets.

    You should not pay for RK & Admin as a % of assets or evaluate it that way.

    How about representing (and evaluating) RK & Admin costs as $/participant/year instead of a % of assets??

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