Defined contribution plan executives have plenty to do in 2017 without contemplating the impact of the next president, the next Congress or the next set of regulatory agency chiefs.
From fee negotiations to plan design changes, sponsors — as well as service providers and asset managers — will work on practices and confront challenges independent of Washington's influence or interference, consultants said.
“Fees can't be ignored,” said Ross Bremen, a partner at NEPC LLC, Boston, whose firm's annual surveys have shown a steady overall decline in plan investment fees in recent years. The latest survey, published in September, found that average fees dropped to 42 basis points in 2015 — down 8.7% from 2014.
“When we have conducted our surveys, plan fees are at the top of everyone's agenda list, and 2017 will be no different,” Mr. Bremen said.
Look for plan executives to conduct more fee benchmarking studies, focus more on per-head fee contracts rather than asset-based fee contracts with record keepers and, in some cases, move away from revenue sharing, he added. “Sponsors want more transparency and fairness.”
Mr. Bremen and other consultants said plan executives should beware of emphasizing fees in a vacuum. “The focus on fees may have gone a bit too far,” said Liana Magner, a Boston-based partner for Mercer. “This is not a race to the bottom. Sponsors should consider fees in the overall context of what they are trying to accomplish.” DC plans might lose out on certain services if they simply choose the lowest-fee provider, Ms. Magner said.
Fees affect not only plan costs but also investment options. For example, Mr. Bremen said the push for lower fees — and fears of litigation — will push some plans to emphasize passive investments over actively managed ones. The executives might believe passive investments are “safer” from a litigation perspective and “more appropriate” from a management perspective, he said.