Penn State to Adopt Fee-Leveling Approach in Retirement Plans

Pennsylvania State University has announced changes in how administrative fees will be charged to its 403(b) plan and 457(b) plan participants’ accounts effective July 1, 2018.

“Administrative fees are nothing new to individuals participating in the Penn State retirement plans administered by TIAA; however, up to this point, administrative fees have been charged disproportionately among plan participants,” the announcement in the Penn State News says. “Penn State will adopt a ‘fee-leveling’ approach, an industry best practice, to create a more fair and equitable way to account for administrative expenses.”

The announcement explains that fee-leveling ensures that all participants pay the same percentage of their account balances for recordkeeping and administrative fees, regardless of the funds in which they invest, and says recent advancements in the recordkeeping system used by TIAA are enabling Penn State to take this step. In 2018, the annual administrative fee is 0.052%, or $0.52 per $1,000 invested. Employees will see either a “TIAA Plan Servicing Fee” or “TIAA Plan Servicing Credit” on their quarterly statement, effective September 30, 2018.

The announcement also notifies plan participants about revenue sharing paid to TIAA from some investment funds, and says revenue sharing will be rebated to participants. “This means that any revenue sharing within an investment option greater than the administrative fee of 0.052 percent will be credited back to the participant’s account. Any investment option with revenue sharing less than the administrative fee of 0.052 percent will be assessed a fee,” the announcement says. It includes a table showing examples of how revenue sharing and plan fees/credits combine to cover the full administrative costs of the plans.

The announcement comes as many higher education institutions are facing lawsuits challenging fees charged in their 403(b) plans, including investment fees, recordkeeping fees and the use of revenue sharing.