Since 2006, several class-action lawsuits have alleged that plan sponsors failed to meet their fiduciary responsibilities by ignoring payments that investment managers paid to record keepers and other service providers. The suits also charge that plan executives failed to disclose these fees to participants, as required by the Employee Retirement Income Security Act.
As a result, Mr. Gnabasik, “providers and sponsors have to be more open about disclosing fees and plan costs.”
Akzo Nobel, with help from Blue Prairie, negotiated for lower-cost investment options and extra services from its bundled provider, Fidelity Investments, Boston. But, it was a lengthy process.
Jaime Erickson, manager of defined contribution plans for Akzo Nobel, said the study found $558,000 in excess revenue.
“Doing a fee study is critical. It doesn't guarantee huge savings, but if excess revenue is identified, it could mean significant savings,” said Mr. Gnabasik. “In Akzo Nobel's case, there was significant savings, for sure.”
Much of the savings came from eliminating three funds from Franklin Templeton Investments Inc., San Mateo, Calif., and moving to less costly ones with The Vanguard Group, Malvern, Pa., and Barclays Global Investors, San Francisco.
“The final result was we would be saving $31,000 by moving to a Vanguard index fund, $67,000 by switching to a Vanguard money market (fund), $340,000 by moving to Barclays' target-date funds, and Fidelity would waive all our quarterly fees, which (total) $120,000,” said Ms. Erickson.
Akzo Nobel executives also negotiated for more education for participants.
“Fidelity increased the number of education meetings from six to 12 and they waived the implementation fees for Financial Engines' managed accounts,” she said.
Akzo Nobel will begin offering managed accounts and investment advice from Financial Engines Inc., Palo Alto, Calif., in July.
Another plan Blue Prairie Group consulted with, which Mr. Gnabasik declined to name, hired the firm to help it find a new service provider and lower its costs. Blue Prairie helped the company negotiate a contract in which any excess revenue reaped would be returned to the plan. The redesign shrank the investment-management cost of the plan to 60 basis points, from 71.
Additionally, any administrative revenue the provider earns in excess of 15 basis points of plan assets would be returned to plan participants, in the form of lower-cost funds or as a credit against eligible ERISA plan expenses.
Carol Sung, manager of 401(k) product development at International Paper, said plan officials recently completed a fee study, but declined to provide details of how much in excess revenue they found. JPMorgan Retirement Plan Services Inc., Kansas City, Mo., is the plan's record keeper.
According to a consultant who worked on Internet Security Systems' $40 million 401(k) plan, the plan was able to save significant costs by switching to lower-cost investment options and closing out a number of orphaned accounts for which the plan was unknowingly paying administrative fees.
“This plan is relatively small, but they were able to save about $80,000. All this was discovered through a fee (study),” said the consultant, who asked not to be named. Daniel Eidson, treasury director for ISS, declined to comment.
Some fund executives, however, are facing an uphill battle from their service providers.
“What we did was negotiate for more services. We had to go back to our provider on more than one occasion to find out how much there was. We found that there was hundreds of thousands of dollars generated from three outside funds,” said Ms. Erickson.
A spokesman for Fidelity declined to comment.