Data and Research

Interpreting Investment Fee Research Is An Art

There is more retirement plan investment fee data available than ever before, but it is still not exactly easy to identify a good value. 

By John Manganaro | April 14, 2017
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Nearly all retirement plan industry professionals would agree in principle that improved access to investment fee data has helped plan sponsors and participants shift towards more cost-effective products and providers.

Particularly since the introduction of 408(b)2 and 404(a)(5) fee disclosure regulations and the online availability of Form 5500 data, the ecosystem of fee and service benchmarking information for defined contribution (DC) plan sponsors and participants has expanded dramatically. The individual fee disclosures may still be difficult for the average participant to read and fully understand—steeped as they are in insider jargon and technical language—but the information is out there, and this is a good thing.

Perhaps even more helpful to plan sponsors and participants than the massive amounts of raw data on their own product choices is the increased prevalence of third-party fee comparison studies, which aggregate and benchmark information from broad pools of retirement plans and investment providers. One of the most recent examples shared with PLANADVISER comes from RiXtrema. The in-depth new report is impressive, billed by the firm as the “largest study of its kind ever conducted.” According  to RiXtrema, the underlying analysis “took 17 days of non-stop calculation on powerful 32 CPU Core computers.”

The conclusion of the study is summarized by its subhead: “Record Study of Retirement Plan Investment Expense Finds Over $17 Billion of Annual Waste.” RiXtrema says the analysis “went beyond fees, also focusing on quality measures to ensure that fee savings would not come at the expense of performance for participants.”  

“We have been researching the defined contribution plan market for more than two years and have been surprised to find that even many of the largest plans do not use the available leverage to obtain the best deal for plan participants,” observes RiXtrema President Daniel Satchkov. He explains that RiXtrema analyzed 52,529 retirement plans from the Department of Labor EFAST database, an all-electronic processing system of Forms 5500 and 5500-SF.

Satchkov notes the research leverages “a strict criterion that allowed the consideration of only high-quality funds as low-fee alternatives to the universe of expensive incumbent funds.”

“In the current study, only funds with a better ten-year track record than the incumbent funds were allowed to be used as replacements to obtain the savings,” Satchkov explains. “We also reran the analysis removing index funds and ETFs. The plan savings remained extremely high, in spite of the additional criteria.” 

NEXT: What fee data reveals