WASHINGTON -- ICMA Retirement Corp. has offered a few of its largest plan sponsors a fee deal they just couldn't pass up.
On April 1, the Washington-based ICMA registered 13 mutual funds called The Vantagepoint Mutual Funds with the Securities and Exchange Commission.
Since then, ICMA effectively reduced fees to six public defined contribution plan clients, charging about $18 per participant account, rather than a fee based on assets under management.
One plan sponsor is saving 16 basis points annually, said Robert Barkin, vice president of corporate communications.
Before The Vantagepoint funds were registered, plan sponsors with ICMA invested in its commingled accounts through ICMA's retirement trust. After the funds were registered, a handful of ICMA's largest pension plans were given the option of investing directly into the mutual funds; ICMA structured the fees to mirror such an arrangement, that is on a per account basis, Mr. Barkin explained.
And, ICMA did not raise the expense ratios of the funds when it registered them as mutual funds, he noted. The average expense ratio for ICMA's mutual fund is 68 basis points, below the industry average fund expense of about 83 basis points, he said.
"As plan accounts get larger we try to give more fee breaks for participants. It allows their accounts to grow and keeps us more competitive," Mr. Barkin said.
ICMA is a non-profit organization and the fee reduction is part of the company's "overall mission" to return net revenue to clients, Mr. Barkin said.
The Los Angeles County Metropolitan Transit Authority took ICMA up on its flat fee deal for its $180 million 457 and 401(k) plans. ICMA also threw in a mutual fund brokerage account window, said Edward Paull, the MTA's pension and benefits manager.
The brokerage window is being offered to ICMA clients with at least $10 million in assets through a year-old arrangement with Charles Schwab & Co. Inc., San Francisco.
The MTA is adding the window to its 24 other options so participants can access some mutual funds that were in the plan before MTA switched bundled providers three years ago, Mr. Paull said.
"Ninety-five percent of the people are content," Mr. Paull said. "But we had several name-brand mutual funds before we switched to ICMA three years ago and some participants were enamored with the funds."
The MTA will include nine of ICMA's new mutual funds and five ICMA model portfolios -- conservative growth, aggressive growth, savings, long term and traditional.
While Mr. Paull said he is pleased with the fee break, he wonders how ICMA, which devotes one full-time employee to MTA, will be able to afford to continue the same service.
"We have to see how this works down the road," he said.
To determine which plan sponsors were offered the fee break, ICMA executives chose the largest accounts -- those with about $100 million or more, Mr. Barkin said. Executives also considered ICMA's relationship with the fund and the individual account size.
And, he said, ICMA executives will evaluate their benchmarks annually and possibly lower the requirements for fee breaks.
Some consultants said this kind of per-account fee arrangement or no fee is growing in popularity.
"I've heard of people going to performance-based fees but this is new to me," said Roxanne Fleszar, principal at Financial Resources Management Corp., Peabody, Mass. "When you look at the way assets are managed around the world . . . they always calculate fees by assets under management."
At the same time, plan sponsors are paying more attention to fees and expenses, she said.
The fee arrangement may not be labeled as percentage of assets, but firms that charge a per account fee or no fee at all generally make up for that with higher costs embedded in their proprietary funds, said Brian Maxwell, an investment consultant with Buck Consultants, New York.
Participants do not notice these expenses because they are not identified as investment management fees on their statements and the charges are subtracted from their returns, Mr. Maxwell said. What they do notice with displeasure are annual fees tacked on to their statements, he added.
