And the beat goes on. DC record keeping fees continue to decline sharply, according to a study of larger plans by consultant NEPC. Even as account balances continue to rise under favorable market conditions and expense ratios remain steady, record keeping fees are declining at a rapid and alarming rate, reaching new lows.
Driven by fee disclosure and litigation, plan sponsors are paying an average of $80 per participant in 2013, compared with $92 in 2012 and $112 in 2006. The median plan cost dropped from 55 BPs in the 2012 study to 53 BPs this year. Though still prevalent, revenue sharing arrangements are declining — 39% of plan options don’t include them and 13% of plans (generally larger plans) have no revenue sharing at all.
NEPC notes that bundled record keepers with proprietary assets, especially TDFs, experienced the largest drop in fees. Managed accounts continue to struggle to gain acceptance, while 14% of plans offer custom target date solutions (although there was no indication of the percentage of assets they represent).
What happens up-market generally trickles down, as evidenced by the growing popularity and variety of R6 shares and index funds. As record keeping fees are exposed, the tendency will be for them to drop, especially under hard-dollar fee arrangements against a backdrop of “sweet” deals from bundled providers with proprietary TDFs.
For record keepers without scale or proprietary TDFs, the DC world will only get harder as they need to leverage capacity further, driving down costs and reducing margins. While plan advisors need to be aggressive with fees on behalf of clients, and might be attracted to great deals from smaller record keepers, the end game may not be appealing.
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