Meanwhile, industry conversations have been shifting more toward plan success and the reporting necessary to measure that success, says Mitch Cook, an institutional retirement plan consultant at Lexington, Ky.-headquartered Unified Trust Company, which manages $4.2 billion in 401(k) plan assets. Fees remain an integral part of these dialogues, he says—from benchmarking to delivering the right service model.
More plans are benchmarking fees once or even twice a year to compare costs across the industry, he says. Although using the lowest share class is often the best choice, he says, “Make sure you’re not driving fees down so low that you start losing the quality, the service and the necessary fiduciary protection to the plan sponsors.”
Plans that have a solid, defined investment process in place (as outlined in their investment policy statements) can do a better job identifying the funds they should hold and the appropriate share class, he says.
Unified Trust looks at which funds are at the top of their peer class and at alpha, beta and Sharpe ratios. It uses a proprietary scoring system and also speaks with fund managers to ensure it’s comfortable with their philosophies and approaches.
According to Cook, more plan sponsors are realizing they need to step in and pay for a portion or all the administrative expenses of their retirement program to help drive better participant outcomes. When passing 401(k) fees to participants, advisors and plan sponsors should educate them about the reasons behind any changes and why it’ll be better for them and their beneficiaries, he says.
For example, if a plan sponsor opts for customized allocations, he says, let participants know they should be better on track to retire with replacement income and that they won’t have the burden of making investment decisions on their own.
Cook reminds plan sponsors who handle administrative services in-house that they need to avoid the biggest liabilities—missing deadlines for enrolling employees in a plan and submitting contributions. For plan sponsor clients using outside providers, advisors should ensure the fees are reasonable and the services are still appropriate as their clients’ companies evolve, as pricing changes and as technology evolves to further enhance retirement programs, he says.
More Money-Saving Trends
Gene Cufone, senior vice president of retirement administration at Ascensus, which provides a plan comparison tool for record-keeping expenses, anticipates a continued trend in tiered plans. Their contracts don’t have to be renegotiated as assets grow, he says, so “it’s more of a set-it-and-forget-it arrangement.” He’s seeing increased use of tiered plans among smaller plans as they come down-market.
He’s also noticing a greater shift toward zero revenue funds. Nearly two-thirds (63%) of the assets in the 401(k) plans Ascensus administers were invested in zero revenue funds at the end of 2017, while only 37% were at the end of 2016, he says.