Lincoln Trust Co., a Denver-based third-party administrator, introduced the Personalized Expense Ratio (PER) Wednesday, which allows participants, plan sponsors, and advisors to see the actual cost of their plans without having to perform calculations themselves.
The new Lincoln Trust offering is designed to go beyond the Department of Labor’s (DOL’s) recent revisions to 408(b)(2) and 404(a)(5) reporting requirements, according to the company. As Lincoln Trust notes, neither regulation calls for the calculation and display of a plan’s or a participant’s total plan cost.
“We didn’t think that the DOL regulations went far enough to provide a clear understanding of the true cost of a 401(k) plan,” Tom Gonnella, senior vice president of corporate development for Lincoln Trust Co., said in a statement. “Our ‘Personalized Expense Ratio’ was designed to provide a more precise calculation by including investment expenses and aggregating fees from multiple service providers.”
Lincoln Trust claims to be one of the first platforms to combine actual fees paid with investment expenses in a single calculation, both for the individual participant and for the entire plan. Fee categories include recordkeeping, advisor, TPA and investment expense fees, as well as revenue sharing offsets. PER also calculates and displays investment costs using a participant’s average daily balance rather than just period-end balance.
The company cites a study by Deloitte and the Investment Company Institute, which found investment expenses account for 74% of a plan’s “all-in” cost. The DOL only requires the disclosure of the expense ratios and the amount per $1,000 that it would cost participants to be invested in the fund, leaving the burden on the participant to perform the calculations to determine his or her investment expense.
“We don’t believe that participants, plan sponsors or advisors should have to wonder what they’re paying for their 401(k) plans,” Gonnella adds. “And we don’t think each party should be burdened with having to perform this calculation themselves. With PER, Lincoln Trust provides all the information in a simple to understand figure along with a relevant benchmark.”
The company says it has 2,000 qualified plan clients and $7.6 billion in retirement assets.