A New Way to Benchmark Retirement Plan Fees

Most retirement plan sponsors are probably benchmarking plan fees to averages paid by similar plans in the industry.

However, some advisers and vendors put in more time than others when providing services to plans, but if they charge more compared to an average, their fees seem high. On the other hand, some advisers and vendors may do hardly anything, so if they charge the average, their fees are not reasonable.

Jonathan E. Baltes, chief executive officer of QPSteno in Fort Wayne, Indiana, uses this illustration: “If I told you the average price of a car in the U.S. is $30,000, and I’m going to sell you one for $20,000, is that a reasonable fee or a good deal? Some would say ‘yes’ because it’s below average. But, what if the car I’m selling you is a 30-year-old Yugo with 300,000 miles on it. Are you still excited about the deal? No, you would be excited if it were a new S-class Mercedes.”

Baltes tells PLANADVISER, the fee a retirement plan trustee will pay a covered service provider (CSP) is simply a number absent some sort of internal framework or reference point. The industry use of averages is a well-intentioned practice, but it depends on clients being average, he says. But, clients have different needs and many need more than average service.

QPSteno aggregates the activities of any CSP to a qualified retirement plan—advisers, broker/dealers, recordkeepers, mutual fund companies, third-party administrators (TPAs). Control is in the hands of the plan trustee, but service provider input is essential. It is similar to a time sheet tracking of time spent on certain activities.

Baltes says his firm has seen some pushback from providers that say it seems childish to keep track of their time, but trustees can input the information CSPs furnish into the system and come up with an hourly rate—something they are familiar with from other personal or business service invoices, he notes.

“Most trustees see a service provider’s work in quarterly meetings or annual plan reviews, but they don’t see phone calls, emails, report preparations, fund due diligence, or reviews for replacement funds. We provide that insight to trustees,” Baltes adds.

Baltes says QPSteno’s long-term goal is to provide benchmarking by activity or time taken on activities. For example, if census data collection on average takes two hours, and a TPA can do it in one hour, that’s a selling point for the TPA. If it takes the TPA three hours, a trustee can determine if it’s a problem with the plan sponsor’s data or processes or with the TPA's processes.

Another thing the system benchmarks is participant behavior. Baltes says when he was an adviser, one participant would come into his office every quarter with a handful of statements and would want an explanation of changes to his accounts. A conversation with another plan service provider revealed the participant was doing the same thing with him. By aggregating information about service provider activities, plan sponsors can address issues with participants—what are they asking for, and what education do they need?

There is a dashboard when trustees log into the system that shows time spent on which activities, and trustees may view that data for prior months and years to track trends. QPSteno can also offer trustees additional reports upon request.

While QPSteno’s corporate office is in Fort Wayne, Baltes has a partner running an office out of Columbus, Ohio. Plan trustees can subscribe to the service, but the firm is working with providers so they can offer the service to their clients. There is a flat charge for the service, but based on QPSteno’s relationship of CSPs, they may be able to reduce the fee in some cases. For example, if a broker/dealer has engaged the company to provide reports about its services and fees and a plan sponsor uses that broker/dealer, since QPSteno is already collecting that data, the trustee will not be charged as much for the service.

More information about QPSteno is at www.qpsteno.com.