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Defined Contribution

DC investment fee cuts slow while record-keeping fees reverse course — survey

The pace of cutting defined contribution investment fees slowed while record-keeping fees inched up in 2017, according to an annual survey conducted by investment consultant NEPC, issued Wednesday.

"The slight change in the trend might only be temporary," Ross Bremen, an NEPC partner, said in an interview. "Sponsors are still looking for cheaper share classes."

Median weighted-average plan investment fees reached 41 basis points this year vs. 42 in 2016. In 2013, the NEPC survey reported median plan investment fees at 52 basis points. NEPC has been conducting this survey since 2006, and the highest fee score was 58 basis points in 2008.

There was a small reversal in the record-keeping fee trend. The median of $59 per participant this year rose vs. the $57 per participant in 2016. Median fees had been dropping steadily since 2013 when it was $80 per participant. The highest fee per participant was $118 in 2006.

Mr. Bremen said sponsors continue issuing RFPs for record keepers. The survey said 83% of plans have signed new record-keeping contracts since 2014, both with incumbents and new providers.

"We thought that fees would reach a bottom at some point," said Mr. Bremen, referring to the latest results.

He repeated his comments from previous surveys that cheapest isn't always best and that excessive fee cutting could reduce products and services available to participants. "The race to the bottom isn't good for anyone," he said.

Among the survey's other findings:

  • target-date funds now account for 34% of total plan assets vs. 30% last year and17% in 2010;
  • more plans offer self-directed brokerage windows — 54% in 2017 vs. 49% last year and 19% in 2006 — a strategy that Mr. Bremen attributed as a way for plans to provide investment choices even as they trim the number of core investment options;
  • more plans offer managed accounts — 28% in 2017 vs. 25% last year and 13% in 2006;
  • the percentage of plans offering auto enrollment has leveled, hovering between 53% and 55% during the last four years; and
  • the average deferral rate among plans offering auto enrollment has remained essentially flat — 3.5% or 3.4% — during the last four years.

The NEPC survey was based on responses from 21 record keepers for 123 DC plans — mostly 401(k) plans and NEPC clients — with $138 billion in aggregate assets and covering 1.5 million participants.