Inside the Structure of Defined Contribution/401(k) Plan Fees
A study assessing the mechanics of the ‘All-In’ fee
With the estimate of employer-sponsored defined contribution plans reaching $4.5 trillion by end of 2010 the scrutiny surrounding these plans has grown progressively. Specifically, the charged plan fee is of particular interest to the Department of Labor (DOL) that aims to have greater transparency through regulatory disclosure requirements under §408(b)(2) and §404(a) of the Employee Retirement Income Security Act (ERISA).
This second edition of Defined Contribution/401(k) Fee Study is a survey conducted by Deloitte Consulting LLP in with the Investment Company Institute. Participated by 520 plan sponsors the survey gathered 250 data elements representing a cross section of defined contribution plans covering a range of asset sizes and participant counts. The report aims to study and identify the drivers of fees in defined contribution plans across the industry. It explains the mechanics, components and drivers of defined contribution/401(k) plan fees. Key findings indicate that:
- Primary drivers of fees are plan size — measured by number of participants in the plan and average account balance — and the percentage of plan assets invested in equity investment options.
- The ‘all-in’ fee as a percentage of assets tends to be lower in plans with a higher number of participants and higher average participant account balances.
- Defined contribution/401(k) plans have fixed administrative costs necessary to run a plan that tend to cause smaller plans to have higher relative fees as a percentage of assets.
- As a plan grows in size, economies are gained which spread the fixed costs over more participants and a larger asset base.
- The ‘all-in’ fee tends to be higher the larger the share of plan assets invested in equity investment options, reflecting the higher expense ratios typically associated with equity investments.
Download the report to learn more.