Fees have become the No. 1 reason retirement plan sponsors switch providers, outpacing poor service, according to a new Spectrem Group report. Nearly one-third (30%) of plan sponsors cited cost/fees as the primary factor precipitating a change in plan providers. This surpassed poor service (26%) and investment issues (12%), and represents the first time that fees have been the leading reason for changing providers, according to the report, DC Market Needs. In 2005, cost/fees finished third (18%) to both poor service (45%) and investment issues (26%). Fees also came in third in 1999 and 2002.
"The newfound focus on fees coincides with increased attention paid to fees and fee disclosure by the media and regulators over the past couple of years," said George Walper, President of Spectrem Group, in a statement. "Of course, sponsors' greater scrutiny of fees puts pressure on providers to reduce them and, consequently, may impact margins in an already competitive market segment." The study also found that plan sponsors appear to have grown more knowledgeable about the fees they pay. When asked, 18% said they pay less than 1% of plan assets and 21% cited fees in excess of 2% of assets. "These responses are far more realistic than plan sponsors provided in 2005, when a full 54% said they paid less than 1% of assets and just 4% cited more than 2% of assets," the report states.
The report is based on the online polling of individuals responsible for the selection and evaluation of retirement plan providers at 1,052 companies with defined contribution plans. Polling was conducted in May and June, 2008.
Meanwhile, another recent Spectrem report found that only 38% of workers employed by education and non-profit sector organizations contribute 6% or more of their salaries to their 403(b) retirement plan. This compares with 49% among private-sector 401(k) participants. Catch-up contributions among the 403(b) group are also relatively low, notes the Spectrem report, Participants in 401(k) and 403(b) Plans: Are They Different? At the same time, just 57% of 403(b) participants receive employer match contributions, considerably fewer than 401(k) participants (74%). Those enrolled in 403(b) plans are twice as likely as those in the 401(k) group to receive no employer contributions at all. The Spectrem report compares these two groups in terms of retirement preparation, demographics, and investment behavior.