Totaling all administrative, recordkeeping and investment fees, the median participant-weighted “all-in” fee for plans in the 2011 Defined Contribution/401(K) Fee Study was 0.78%, or approximately $248 per participant. The data suggest that the participant at the 10th percentile was in a plan with an “all-in” fee of 0.28%, while the participant at the 90th percentile was in a plan with an “all-in” fee of 1.38%.
The median participant “all-in” fee of 0.78% of assets in the 2011 Fee Study is lower than that observed in the 2009 Fee Study, which was 0.86% of assets. The companies said there are a number of factors that may contribute to the decline in the ‘all-in’ fee between the 2009 Fee Study and the 2011 study.
These factors include different samples of plan sponsors; a larger survey population (over four times as large); different asset allocations (some driven by market performance between the two years); and different fee structures within the industry.
One reason for the lower median “all-in” fee in the 2011 Fee Study versus the 2009 Fee Study may also be related to the relationship between asset-based fees and non-asset-based fees. When plan asset information was collected in the 2009 survey, investment markets had just experienced the turmoil of the financial crisis of late 2008. Since that time, financial markets have rebounded and total plan assets have grown. As deﬁned contribution plan assets grew, the non-asset-based fees would have been spread out over a larger asset base, causing them to fall as a percentage of assets.
Despite the differences, the study found the two primary drivers from the previous survey continued to be important factors in explaining the variation in fees across plans within the 2011 survey sample. Speciﬁcally, the study showed that plan size as measured by number of participants and average account balance were primary drivers of a plan’s “all-in” fee, which was also the case in the 2009 Fee Study.
In addition to the two plan-size-related primary drivers, the 2011 Fee Study found that the percentage of a plan’s assets in equity investment options was also determined to be a primary driver of a plan’s “all-in”fee. This factor was identiﬁed as a secondary driver in the 2009 Fee Study.
The 2011 study found investment fees make up a signiﬁcant portion of total plan expenses—84% of the “all-in” fee for the study sample. Findings also showed that equity investment options have higher expense ratios than ﬁxed-income or other asset classes. A regression analysis indicated that a 10 percentage point shift in plan assets into equity investment options is associated with an added 2.6 basis points to the “all-in” fee.
The Fee Study report is here.