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Fees in DC Plans Flatten for First Time Since 2010

By Alex Padalka September 1, 2017

After falling for seven years, recordkeeping, trust and custody fees in defined contribution plans are flattening out, according to a survey from NEPC, an investment consulting firm to defined contribution plans. Nonetheless, the plans are also looking to give back excess revenue to participants and some are eliminating revenue sharing entirely, NEPC found.

The median recordkeeper, trust and custody fee is now $59, compared to $57 in 2016, which was the lowest in a decade, according to NEPC’s survey of 123 respondents from defined contribution plans representing 1.5 million plan participants and $138 billion in assets. The asset-weighted average expense ratio in defined contribution plans, meanwhile, inched down to 0.41% in 2017, compared to 0.42% last year.

Fees have come off substantially since 2006, however, when they were $118, with an expense ratio of 0.57%, according to the survey. And fees are likely to fall next year, according to Ross Bremen, a partner and defined contribution strategist at NEPC.

A drop in fees “is often a double-edged sword,” he says in a press release accompanying the survey. While it looks great to participants, lower fees risk “hindering innovation and service,” Bremen says.

Plan participants are not just getting lower fees but more choice to boot. The median plan now has 23 investment options, compared to 22 last year and only 14 in 2006, NEPC found.

Firms working with defined contribution plans, on the other hand, may see cuts in revenue sharing. While 77% of the plans currently offer some form of it, they’re aiming to return excess revenue to plan participants, according to the survey. And smaller plans are starting to do away with revenue sharing completely, according to NEPC. Currently, 73% of the plans use excess revenue to offset fees, 33% return it to participants and just 5% let the recordkeeper keep it, the survey found.