Other consultants agree some improvements have been made — but not enough and not fast enough. “That situation has changed markedly over the last three years, and I hope it will continue to change,” said Mercer's Ms. Brown.
“With the exception of a couple of outliers, most record keepers are more transparent than they were five years ago,” said Mr. Bremen of NEPC. He declined to identify reluctant record keepers.
“All sides are looking for clarity,” he added. “Sponsors want to meet their fiduciary responsibility. Record keepers want to avoid litigation.”
Mr. Bremen said existing law still invites multiple interpretations. “ERISA does not specify a permissible level of fees but it does require that they be ‘reasonable,'” he said. “We need everyone following one rule book.”
Existing practices still invite multiple interpretations, too. “By definition, bundling (of fees) is largely inconsistent with transparency,” Mr. Bremen said.
Fee bundling is especially difficult for plan officials at smaller funds to decipher, said Mr. Alfred of BrightScope Inc. “I don't think sponsors are doing enough (to evaluate fees) because they don't know where they're at,” he said. “They don't have benchmarks. They have to know where they're at before they decide where they want to be.”
(In BrightScope's database of some 40,000 DC plans, Mr. Alfred said, a “rough estimate” indicates 90% of plans with less than $25 million in retirement assets have a bundled-fee structure. The bundled-fee rate is 70% for companies with $25 million to $100 million in assets and 55% for larger DC plans.)
Mr. Alfred wants a better definition of a disclosable fee.
“Most of the complexity here is within the (mutual) funds themselves,” he said. “Is a fund brokerage commission considered a disclosable fee to plan participants? What about other fund operating expenses (such as directors' pay and audit expenses)? What about completely undisclosed insurance group variable annuity wrap charges?”
Hewitt's Ms. Borland advocates more clarity over potential conflicts of interest such as requiring sponsors to disclose to participants “all sources of potential revenue associated with a provider's servicing of a plan.” One example: the selling of retail products such as IRA rollovers. Adequate disclosure would reveal if a provider has an incentive to sell more expensive products to participants, she said.
Another tricky issue is revenue sharing, in which all or most of a record keeper's costs for providing services are offset by a plan's investments. There can be considerable variability, producing “a level of complexity” that makes fee disclosure difficult, said Jennifer Flodin, chief operating officer and co-founder of consulting firm Plan Sponsor Advisors, Chicago.
“I have seen the same exact fund, share class and all, pay one record keeper 0.35% in revenue share and another record keeper, 0.10%,” she said. “That is a huge difference in what the record keeper receives to offset their record keeping services. Does that make sense?”