Advisers working with employers to improve their employees’ retirement savings should be urging clients to make sure their defined contribution plan costs are being distributed fairly amongst all of its employees, benefit industry experts are saying, adding that administration fee consistency can help workers save more towards retirement.

Although half of employers are concerned about 401(k) plan expenses and 75% review their fees and plan costs annually, many are not assessing fees evenly across all asset classes, leaving some workers to pay a greater share of the costs, according to data released Wednesday by the global HR consulting firm Aon Hewitt. Just one out of five (21%) plan sponsors has recently restructured the administrative fees of their plan to be assessed in a more equitable manner and of the remaining group, only 6% are likely to do so this year, the firm adds.

Fair fund revenue distribution should be a core competency in the market and one that benefit advisers can work with employers to achieve, says Stig Nybo, president of pension sales and distribution for Transamerica Retirement Solutions, headquartered in Cedar Rapids, Iowa.

Where advisers come in

Restructuring a client’s fee distribution allows benefit advisers to “have an engaging conversation with the plan sponsor about what is fair for the participant, and what the employer is trying to accomplish with their retirement plan, and as a result of that, how the fees should be allocated in a plan,” Nybo says.

“That’s a very productive and not as common conversation that an adviser can have with their plan sponsor to show they’re at a different level than other advisers,” he adds.

In addition to reviewing the aggregate fees paid by the plan, Winfield Evens — director of HRO Investment Solutions & Strategy at Aon Hewitt — says “it is important for plan sponsors to conduct a more detailed analysis to determine if certain employees are shouldering a larger percentage of fees than others.”

More than half of employers currently rely on expense reimbursements from investment options to defray administrative costs, Evens says, adding that because of the wide range of payments provided by different asset managers and share classes, in many situations, the majority of plan costs are paid for by a minority of workers.

“Even participants with the same account balances are often paying significantly different amounts for plan administration,” he adds. “Best-in-class employers are moving away from this approach and are designing their fee model so that an employee would pay the same amount in fees regardless of how their portfolio is allocated.”

When Transamerica launched its Fund Revenue Equalization program several years back, however, Nybo says they received mixed feedback from employers, with some anxious to level their plan fees and others who weren’t sure it was a good idea.

Register or login for access to this item and much more

All Employee Benefit Adviser content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access