Client Service January 18, 2019

Advisers Can Help Plan Sponsors With Their Focus on Fees

In the majority of cases, plan sponsors that participated in Callan’s 2019 Defined Contribution (DC) Trends Survey said their plan consultant/adviser conducted fee benchmarking, and in 2019, sponsors will be looking to switch to lower-fee share classes and to more institutional vehicles.

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Retirement plan fees ranked as the most likely primary area of focus over the next 12 months among the 106 plan sponsors that participated in Callan’s 2019 Defined Contribution (DC) Trends Survey, with one-third ranking it as a “4” on a 5-point scale and one-quarter ranking it as a “5.”

Almost half of the plan sponsors surveyed had a written fee payment policy in place, either as part of their investment policy statement (19%) or as a separate document (27%).

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The percentage of plan sponsors that calculated their DC plan fees within the past 12 months was 77.1%, and 57.6% said they evaluated indirect revenue when calculating fees.

Over four in five plan sponsors (83.3%) benchmarked the level of plan fees as part of their fee calculation process, up from last year (77.2%). In the majority of cases, their plan consultant/adviser conducted the benchmarking (82.4%), which was consistent with last year. More plan sponsors benchmarked their own plan fees in 2018 than in 2017 (22.1% vs. 14.1%, respectively).

The survey found plan sponsors tend to use multiple data sources in benchmarking. Consultant databases (67.7%) were the most heavily used method, showing a substantial increase year-over-year. Requests for information (RFIs) (25.8%) and data from the plan recordkeeper’s database (24.2%) were the next most frequently cited. General benchmarking data fell in half from last year (46% in 2017 vs. 22.6% in 2018). Two-thirds (66.3%) both calculated and benchmarked plan fees within the past 12 months.

Over half of plan sponsors kept fees the same following their most recent fee review (54.7%), while about three in ten plans (29.3%) reduced fees. After reducing fees, the next most common activity resulting from a fee assessment in 2018 was changing the way fees were paid (14.7%).

According to the survey results, investment management fees were most often entirely paid by participants (77.1%), and almost always at least partially paid by participants (91.6%). In contrast, about one-third (32.5%) of all administrative fees were paid entirely by participants, down significantly from 62.7% in 2017. This was offset by an increase in fees being entirely paid by the plan sponsor (17.8% in 2017 vs. 27.7% in 2018) and fees being split between the sponsor and participant (19.5% in 2017 vs. 38.6% in 2018).

Most plan sponsors (71.1%) noted that at least some administrative fees were participant-paid. In a modest increase from last year, 29.3% of participants paid administrative fees either solely through revenue sharing or through a combination of revenue sharing and some type of out-of-pocket fees. Only 13.8% paid solely through revenue sharing (vs. 14.7% in 2017). Of those paying through an explicit fee, using a per-participant fee continued to be more popular than an asset-based fee, and by a much wider margin in 2018.

Revenue sharing

No plans with revenue sharing reported that all of the funds in the plan provided revenue sharing, a decrease from 2017. The most common was to have between 10% and 25% of funds paying revenue sharing, consistent with 2017. Still, about 6% said they are not sure what percentage of the funds in the plan offer revenue sharing.

Eight out of 10 plan sponsors with revenue sharing had an Employee Retirement Income Security Act (ERISA) account. This was up significantly from 2017 (54.2%) and even more so since 2011 when just over one-third reported having one. For the first time, no plan sponsors responded that they did not know if they had an ERISA account.

In most cases (61.5%), reimbursed administrative fees were held as a plan asset. Consulting fees were the most commonly paid expense through the ERISA account (57.1%), taking over the number one spot from communications, which came in fifth place. Rebating excess revenue sharing, auditing fees, and legal fees tied for second place.

2019 Actions

Five in 10 plan sponsors reported they are either somewhat or very likely to conduct a fee study in 2019

(52.5%), somewhat down from last year (60%). Other somewhat or very likely actions include switching to lower-fee share classes (56.1%) and switching to more institutional vehicles such as collective trusts or separate accounts (42.1%).

Renegotiating recordkeeper and investment manager fees will also be on plan sponsors’ to-do lists (33.8% and 26.7%, respectively). Survey results suggest recordkeeper search activity is likely to continue in 2019, with 19% saying they are very or somewhat likely to conduct a search, up from last year.

And in 2019, more plan sponsors intend to shift fees from the participant to the plan sponsor rather than from the sponsor to the participant.

Results from the survey can be found here.
Products January 17, 2019

Investment Product and Service Launches

ProShares unveils ETF suite; TRPC adds Stadion StoryLine to retirement solutions platform, T. Rowe Price creates Dynamic Credit Fund. 

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Art by Jackson Epstein

Art by Jackson Epstein

ProShares Unveils ETF Suite

ProShares will launch four new exchange-traded funds (ETFs) benchmarked to the S&P Communication Services Select Sector Index next week. The new ETFs (XCOM, UCOM, YCOM and SCOM) will seek daily investment results that correspond to +/- 2x and +/- 3x the daily performance of the index, before fees and expenses. The suite of ETFs will be listed on New York Stock Exchange (NYSE) Arca.

“ProShares is committed to providing knowledgeable investors with a comprehensive set of tools for tactical investing,” says Ben Fulton, managing director of ProShares’ tactical products business. “To that end, we are particularly excited about adding leveraged and inverse communication services ETFs to our sector suite.”

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The S&P Communication Services Select Sector Index covers the new communication services sector, which focuses on the evolution of communication, entertainment and information sharing. The sector brings together certain FAANG stocks, media giants and telecom leaders, among others. While this future-oriented corner of the equity market may be attractive for its long-term growth potential, ProShares leveraged and inverse communication services ETFs offer the opportunity for investors to seek profit from short-term moves—both up and down—as well.

TRPC Adds Stadion StoryLine to Retirement Solutions Platform

The Retirement Plan Company (TRPC) has made Stadion’s StoryLine available on its retirement solutions platform. TRPC is a national provider of account recordkeeping, third-party administration (TPA), and actuarial services for qualified retirement plans.

“For the past 25 years, TRPC’s platform has been an important vehicle for plan advisers looking for solutions that can help Americans realize their retirement dreams,” says Jud Doherty, president and CEO of Stadion Money Management. “We’re delighted that they’ve chosen StoryLine to be part of the TRPC family and look forward to a long and positive relationship with them.” 

The StoryLine process first seeks insight into the overall plan make-up with the intent of tailoring default options for each plan sponsor. With Stadion’s participant-centric web interface, employees can further define their individual investment paths based on personal risk profiles. StoryLine allows—at the employee’s discretion—the inclusion of outside and spousal assets to facilitate retirement planning. The end goal is to have each participant on a personalized path that goes well beyond typical age-based investment strategies. 


T. Rowe Price Creates Dynamic Credit Fund

T. Rowe Price has launched the Dynamic Credit Fund, a total return-oriented bond fund designed to generate returns through a combination of income and capital appreciation. The fund pursues returns that aim to be above the three-month LIBOR in U.S. dollar terms over a full market cycle. The strategy is designed to invest, both long and short, in a wide variety of global credit instruments and is not tied to particular benchmarks, asset classes, or sectors. The Dynamic Credit Fund also has the flexibility to invest across a broad range of traditional and non-traditional fixed income securities to find opportunities across sectors.

The Dynamic Credit Fund’s benchmark-agnostic strategy seeks to deliver attractive returns and defensively preserve capital through the credit cycle. It joins the T. Rowe Price Dynamic Global Bond Fund in T. Rowe Price’s suite of “Dynamic” bond fund offerings.

The fund will seek out high-conviction opportunities created by dynamic global market conditions and expects to hold a relatively concentrated portfolio of traditional and non-traditional fixed income securities, including corporate and sovereign bonds, bank loans, and securitized instruments, including mortgage- and asset-backed securities, across global and U.S. fixed income markets. The fund may also invest in non-investment grade and unrated bonds. 

The fund plans to use more derivatives than traditional bond funds in order to limit volatility while generating excess returns.

The Dynamic Credit Fund will be managed by Saurabh Sud, CFA, who joined T. Rowe Price in April 2018 to develop this strategy. Sud has 11 years of investment experience spanning corporate credit, high yield, securitized, emerging markets, and interest rate sectors. 

“T. Rowe Price has managed global bond portfolios for more than 30 years and this is a very exciting time for the evolution of our platform,” says Sud. “We listened to our clients and designed Dynamic Credit to seek an attractive return stream with a strong emphasis on capital preservation. As such, this fund can be seen as a complement to investors’ existing fixed income portfolios over the long term, and especially in volatile markets like now.”

Mutual of Omaha Adds American Funds TDF

 

Mutual of Omaha Retirement Services has added a new target-date series to its fund lineup and selection of qualified default investment alternatives (QDIAs), the American Funds Target Date Retirement Series.

 

The American Funds series puts an emphasis on equities that pay dividends to help balance market and longevity risks and are managed on a glide path for 30 years after an employee’s approximate retirement date. The fund series seeks continued growth during retirement utilizing strong underlying funds and a commitment to lower costs.

 

In addition to the new target-date series, Mutual of Omaha is also adding American Funds EuroPacific Growth Fund along with 14 other individual funds to expand its investment options across multiple asset categories.

 

“We’re very excited about these additions to our platform and look forward to working with the American Funds RPCs (Retirement Plan Counselors) to make our unique retirement plan product and service advantages available to advisers,” says John Corrieri, vice president of Mutual of Omaha Retirement Services. “One objective of our fund selection process is to always keep the plan sponsors’ fiduciary best interest in mind; we feel adding the American Funds series supports that goal.”

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