The average total plan cost for a small retirement plan (100 participants) for all expenses bundled together, including investment fees deducted from participants' assets and administrative/recordkeeping expenses and trustee fees, paid by the plan sponsor or passed along to participants, was 1.3 percent of assets under management in 2011. The average total plan cost for a large retirement plan (1,000 participants) was slightly lower, at 1.08 percent, according to the 12th edition of the 401k Averages Book.
The annual benchmarking report shows that small plan average investment fund expenses borne by participants was 1.24 percent of assets while for large plans average investment fund expenses were 1.05 percent. Investment expenses accounted for 95 percent of the small plan’s total expenses and 98 percent of the large plan.
"If an employer really wants to cut their 401(k) costs they need to examine their investment-related expenses," said David Huntley, co-author of the 401k Averages Book.
Preparing for Fee Disclosure Regulations
“With the Department of Labor's fee disclosure regulations taking effect in 2012, knowing if your 401(k) plan fees are reasonable will be very important,” added Joseph Valletta, co-author of the 401k Averages Book.
For example, the range between the high and low total plan costs on a 100 participant plan with $50,000 average account balance was 0.36 percent to 1.71 percent of assets under management. “With all the focus on fee disclosure, it’s important employers and their advisors compare their fees to a benchmark and understand where they fit into the range of costs in the marketplace," said Huntley.
Revenue Sharing and Net Investment Costs
Revenue sharing is the behind-the-scenes transfer of revenue from an investment fund to the plan recordkeeper as an incentive to include the fund on the plan's investment menu. The study found that the average revenue-sharing amount on a small plan was 0.68 percent of fund assets under management. In addition, the average net investment cost (excluding revenue sharing) for a small plan was 0.56 percent.
"Fee disclosure is causing some plan sponsors and their advisors to take a more detailed look at how their investment costs are allocated,” said Valletta.
Plan Sponsors Lack Knowledge of Revenue-Sharing Fees, SHRM Online Benefits Discipline, January 2012
In 2012, 401(k) Disclosures Will Shine a Light on Fees, SHRM Online Benefits Discipline, January 2012
SHRM Online Benefits DisciplineSHRM Online Retirement Plans Resource Page