Some Sponsors Aren’t Fee Sure

Nearly one-fourth of plan sponsors surveyed by Mercer express a lack of confidence that fees associated with their 401(k) plans have been properly disclosed.

Among the 150 defined contribution plan sponsors surveyed, 23% said they are not fully confident that investment fees and administrative costs have been properly disclosed, and 25% said their plan vendors have not yet disclosed the amount of annual revenue received from their plan’s investment managers to pay for administrative services, according to a Mercer press release.

The survey also found more employers have implemented formal fee monitoring and benchmarking. Among employers that have benchmarked administrative fees, 68% did so within the past 12 months.

The press release said nearly three-fourths (71%) of the employers surveyed indicated revenue sharing is paid directly to vendors, while 44% reported they pay no explicit administrative fees. Participants are likely to cover the cost when explicit administration fees are charged (47%), and transaction fees are most often charged for loan initiation (74%) and loan maintenance (39%).

Last month, the U.S. Department of Labor unveiled the final portion of its three-part plan disclosures regulatory package that calls for sponsors of employee-directed plans to supply participants with basic plan information including investment returns and expenses (see EBSA Issues New Participant Disclosure Regulations).

“Plan administrators have been formalizing fee monitoring and benchmarking in anticipation of federal requirements around disclosures, as well as in response to the rash of lawsuits initiated on behalf of plan participants,” said Amy Reynolds, a Mercer principal and defined-contribution retirement plan consultant, in the release.

Among survey respondents, 51% had 5,000 or more participants and 36% had from 1,000 to 5,000 participants. More than one third (35%) had assets over $500 million and 31% had assets between $100 million and $500 million.