CHICAGO In real estate its all about location, location, location. In the defined contribution world, its all about fees, fees, fees.
The most attended and most interactive breakout sessions at the Pensions & Investments Defined Contribution Mid-America Conference, held April 27-29 in Chicago, covered defined contribution plan fees, the recent spate of lawsuits against companies alleging too-high 401(k) fees and requirements for increased disclosure of fee information to plan participants.
Since September 2005, Schlichter, Bogard & Denton, a St. Louis-based law firm, has sued 15 Fortune 200 companies over fee expense disclosure.
Bob Eccles, a partner with OMelveny & Myers LLP, Washington, told attendees at a session on Fee Disclosure: Proposed Rules, Issues and Concerns that plan executives should pay close attention to the lawsuits and recent updates.
The cases move at very different speeds. You have a few cases starting to come to the end. In the Deere (& Co.) case, the trial judge saw that this is a plan that had investments where fees ranged from seven basis points to 101 (basis points), he said. In the Wal-Mart (Stores Inc.) case, they had retail, actively managed mutual funds. The plan should not be buying funds with those high fees.
Regarding disclosing the fees, Mike Barry, president of consultant Plan Advisory Services, Chicago, said plan executives need to get a grasp on how much in fees is being paid, because plan participants do not pay attention to such details.
I dont think we can turn people into investors. The best we can do is to get them to be savers. With fee analyzing, we would expect them to be sophisticated investors, said Mr. Barry.
In a session that garnered the most questions and comments from the audience, Fee Analysis and Negotiations, three defined contribution plan executives discussed how they handled fee reviews with their providers.
Frank Janecek, a vice president from HSBC North America Inc., Mettawa, Ill., said HSBCs $2.5 billion 401(k) plan in a bundled arrangement with Vanguard Group, Malvern, Pa., since 1987 undertook a fee study last year.
We decided to look at fees last year and did an audit to benchmark against other plans. We went back to Vanguard to renegotiate and lowered the amount of revenue sharing. We changed some of the investments to have different share classes, said Mr. Janecek.
Silvia Frank, manager of DC plans for Trinity Health, Farmington Hills, Mich., said its $1.3 billion 403(b) plan grew 160% in assets in four years, which prompted a fee study.
We carved out special services and compared record-keeping fees for our plan. Currently, we receive a revenue-sharing disclosure every quarter. We had $1 million of excess revenue a year and we now credit the participant accounts every quarter, said Ms. Frank.
Gail Garrison, finance professional-trust investments for Ameren Services, Peoria, Ill., said its $1.3 billion 401(k) plan has broken out the fees the plan pays with its record keeper, Fidelity Investments, Boston.
Our story goes back a couple years ago when we switched to Fidelity. We wanted to have an unbundled environment like we did (with Hewitt Associates, Lincolnshire, Ill., as record keeper and Northern Trust Corp., Chicago, as trustee). We have zero Fidelity funds. We switched from mutual funds to collective trusts and pay an average of five basis points, said Ms. Garrison.