Defined contribution plan executives are flexing their muscles in negotiations with record keepers, continuing to cut plan costs, a survey by investment consultant NEPC LLC, Boston, shows.
Plan officials are chipping away at investment management fees as well as total plan costs, and they have taken more steps to reduce their reliance on revenue sharing, according to NEPC's ninth annual survey, which will be released Oct. 13.
Ross Bremen, an NEPC partner, said two factors are influencing the DC plans' actions: the enactment of Department of Labor regulations in mid-2012 governing fee disclosure from providers to sponsors and years of litigation by participants against sponsors alleging excessive fees and/or breaches of fiduciary duty.
“It's clear to us that fear of lawsuits is driving plan sponsor agendas,” said Mr. Bremen.
DC consultants, including Mr. Bremen, have noted that DC plans began negotiating new fee arrangements several years before the DOL rules took effect in 2012, anticipating a strengthening of fee disclosure requirements. The DOL initially proposed regulations in October 2007.
“There has been be greater attention to costs being paid today than there has been historically,” said Mr. Bremen, whose firm's latest survey shows a steady decline in plan costs in recent years.
The average estimated plan fees — an “all-in” cost for investment management, record keeping, trust and custody services — dropped to 52 basis points for year-end 2013 from 53 basis points in 2012. These all-in fees have declined steadily each year from the 59 basis points for year-end 2009.
Meanwhile, the annual weighted average expense ratio has dropped to 49 basis points in 2013 from 55 basis points in 2009, the survey said. The expense ratio was 52 basis points in 2012.
“As sponsors have looked for ways to reduce plan expenses, they have moved to cheaper share classes when their record-keeping arrangements have allowed them to do so,” Mr. Bremen said.