Even as employers of all sizes report increased success in their participants savings rates, having sufficient savings and income in retirement remains a top concern for many employees.
Fees can have a significant effect on an employees ultimate retirement nest egg and the issue of appropriate fee disclosure has gained the attention of regulators in recent years. Earlier this year the Department of Labor requested public comments on a proposal to amend its 408(b)(2) fee disclosure regulations to require vendors to provide plan sponsors with a guide for navigating fee disclosure documents. New participant fee disclosure regulations, meanwhile, have been in effect since 2012.
Its a little tough to do an apples-to-apples [fee] comparison, provider by provider, and really thats your best bet for sort of getting a fair deal, says Eric Droblyen, president of Employee Fiduciary, a provider of low-cost retirement plans to small and mid-sized companies.
He notes that most people really dont understand what they were paying because a lot of providers would tell them that their plan is free or costs very little.
Susan Czochara, senior product manager for Northern Trusts DC solutions business, says effective fee management is essentially all about the outcomes for participants.
We know that fees can have a significant impact on a participants ability to effectively prepare for retirement, she tells EBN. To the extent the plan sponsor can help minimize the impact of the fees, this can help improve the retirement outcomes for their participants.
Czochara notes that while target-date funds, a staple of the DC plan market, coupled with index strategies, can help limit costs, she advises that retirement plan sponsors need to be proactive in sizing up where to pay and where not to pay.
There is an old investing adage you cant control the markets, she says. However, costs are the one thing you can control this underscores the importance of consistently monitoring a retirement plans expense structure.
Meanwhile, a recent Aon Hewitt survey finds that half of plan sponsors are very or somewhat concerned about 401(k) plan expenses and three-quarters say they review fees and costs on an annual basis.
Some plan sponsors, though they are doing a great job at looking at their overall fees in aggregate, dont always go down to the next layer [and] into how that may impact individual segments or participants in general, says Winfield Evens, director of HRO investment solutions and strategy at Aon Hewitt.
According to Czochara, comprehensive fee reviews should be done on a regular basis, barring any drastic changes to plan participant numbers.
Plan sponsors should analyze all expenses, fees and revenue both direct and indirect at least every three years, she says. Changes in plan dynamics, such as significant expansion or contraction of plan population or a re-enrollment process, should also trigger a review.
Aon Hewitt recommends distributing plan expenses across the plan population in an equitable manner. One such approach is the asset-based approach, in which participants pay the same percentage of their total account level for administration costs. The per-participant approach, meanwhile, is a structure where all participants pay the same dollar amount regardless of their plan balance or asset allocation. Right now, only 26% of plan sponsors use the per-participant approach, Aon Hewitt says.
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