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On a downward trajectory: Defined contribution plan fees

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A frequent target of complaints among retirement plan account holders is the fees assessed on their portfolios. These charges can significantly reduce the size of a nest egg over a lifetime of investing.

Now the good news: According to new research, recordkeeping fees for defined contributions plans have dropped by nearly 10 percent since this time last year. What’s more, the dip is part of a decade-long trend.

The National Education Policy Center (NEPC) discloses these findings in its 2015 survey on defined contribution plans and fees. Now in its 10th year now, the study includes data from 113 plans, encompassing more than 1.4 million plan participants.

The report shows that defined contribution plan fees have dipped 46 percent since NEPC first conducted the survey. Just in the last year, the administrative charges have fallen by 9 percent.

This year, the median recordkeeping fee is $64 for each plan participant, as compared to $70 a year earlier and $118 in 2006. Fees have declined despite the fact that half of them are asset-based. Yet, over the last year, the report notes, Standard & Poor’s 500 Index gained 13.7 percent.

What accounts for the dip? The survey authors cite heightened scrutiny of plan fees by lawmakers and judges.

“These falling costs are in line with the trend of lower fees even as assets grow, underscoring the impact of increased legislation and fear of potential lawsuits,” the report states. “This downward trend also has been fueled by the heightened scrutiny around these fees by plan sponsors, their advisors and record-keepers themselves.”

Among the report’s additional findings about the DC plans surveyed:

  • 87 percent have some level of revenue-sharing.

  • 58 percent of have plan expense reimbursement accounts (PERAs). These accounts let plan sponsors capture dollars in excess of pre-determined recordkeeping fees and use them for other plan expenses.

  • 52 percent have $1 billion or more in plan assets.

  • 50 percent have contracted recordkeeping fees in a bundled or fixed-basis point structure.

  • 47 percent have fixed-dollar per head recordkeeping arrangements. Of this total, 43 percent of mid-size plans were contracted in the last three years.

Though nearly 9 in 10 plans continue to rely on revenue-sharing, the report notes that retirement investment accounts with fixed-dollar per head fee models have the most plans with no revenue-sharing; and that large plans are more likely than small plans to have no revenue-sharing.

“While there has been much discussion in the industry about the appropriateness of revenue-sharing arrangements, regulators generally have been supportive of the practice of revenue-sharing to help pay a plan’s administrative expenses,” the study adds.