Data & Research May 29, 2024

Fiduciary Fee Study

Small business 401(k) plan costs can benefit from fiduciary-grade advice, a practice that will be mandatory via the DOL’s new Retirement Security Rule.

Reported by

Fiduciary-grade investment advice can reduce the expenses of administering a 401(k) plan, including those of small businesses, according to a data deep-dive by Employee Fiduciary, LLC, a provider of 401(k) recordkeeping and third-party administration services.

When fees are taken from 401(k) participant accounts, they directly decrease returns, resulting in less money available to grow over time, Employee Fiduciary President and CEO Eric Droblyen noted in the report. These fees can ultimately reduce a worker’s retirement savings by hundreds of thousands of dollars and mitigate the success of offering a workplace plan.

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 To gauge just how much fiduciary advice can help reduce plan costs, the firm looked at annual fees charged by 1,109 fiduciary-grade advisers. The results first confirmed that fees dropped as plan assets grew, dropping on average from 0.65% to 0.50%:

Plan Asset Range

$0-$500k

$500k-$1mm

$1mm-$5mm

# of Plans

564

202

343

Average Assets

$189,367.06

$725,229.23

$2,905,250.67

Average Participants

18

22

79

Average Fee

0.69%

0.64%

0.47%

Median Fee

0.65%

0.60%

0.50%

Then, Employee Fiduciary merged its own fees with adviser fees across the plan sizes, finding fees as a percent of assets ranging from 1.63% down to 0.62% total:

Plan Asset Range

$0-$500k

$500k-$1mm

$1mm-$5mm

# of Plans

564

202

343

Average Assets

$189,367.06

$725,229.23

$2,905,250.67

Average Participants

18

22

79

Employee Fiduciary Fee

$1,924.48

$2,291.68

$8,618.94

Advisor Fee

$2,041.43

$4,803.96

$22,479.65

Total Fees

$3,965.91

$7,095.64

$31,098.59

% of Assets

1.63%

0.95%

0.62%

Finally, Employee Fiduciary compared the outcomes to the national average as drawn from the 401k Averages Book, which found an average plan fee of 1.71% for bundled plan administration services of plans with $500,000 in assets. The figure “was higher than the 1.63% average we found for smaller plans,” the recordkeeper concluded.

Employee Fiduciary’s Drobylen tied the findings to the recent introduction of the Retirement Security Rule by the U.S. Department of Labor, which redefines “investment advice fiduciary” under Employee Retirement Income Security Act to include small defined contribution plan advisement.

The final rule is currently facing industry-driven lawsuits, but otherwise is planned to go into effect September 23 in terms of advisers declaring themselves fiduciaries, with other reporting needs and exemptions to kick in at a later date.

“We fully support the new rule,” Droblyen said in a statement. “Our study demonstrates that fiduciary-grade investment advice lowers the total cost of 401(k) plans, resulting in higher returns for participants and more savings to compound until retirement.”

Data & Research May 29, 2024

‘Sandwich Generation’ Caregiving Crimps Retirement Planning

Financial strains are holding back this generation of caregivers, but workplace benefit providers tout potential for employers to help with customized planning.

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Recent research by Nationwide and the Alliance for Lifetime Income highlights financial pressures faced by the ‘sandwich’ generation of caregivers who are stuck between children and aging parents. However, separate findings from Morgan Stanley’s workplace division suggest that tailored workplace benefit plans can assist in staunching the financial pain and stress of this group.

According to the annual Nationwide Retirement Institute Long-Term Care survey, Americans are facing significant financial burdens to provide and pay for long-term care for themselves and their loved ones. The Nationwide survey, conducted from March 12 to April 2, gathered responses from 1,334 U.S. adults aged 28 and older with household incomes of $75,000 or more.

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Nationwide found that to fund caregiving for loved ones, 56% expressed they would borrow from their retirement accounts to support a family member, potentially jeopardizing their long-term finances. Among respondents, 43% worried that the expenses associated with caregiving would hinder their ability ever to retire.

Almost half of respondents, 42%, said they will deplete the funds they had intended to save for their children due to caregiving costs. Caregivers incur significant out-of-pocket expenses, spending $338 per month on average. Costs include co-pays, prescription drugs, gas, transportation and other necessities. Additionally, 15% of Americans have had to switch to part-time work or take a lower-paying, more flexible job to accommodate their caregiving responsibilities.

Social Security

Half of Americans aged 61 to 65 have retired and begun receiving Social Security benefits; moreover, 28% continue to financially support their adult children and extended family, according to a recent study by the Alliance for Lifetime Income. The online survey, which included 2,516 participants aged 45 to 75, was conducted between February 15 and March 2.

“There is real concern that Social Security will not be able to support people who are relying on it as their primary source of retirement income,” Jason Fichtner, executive director of the alliance’s Retirement Income Institute, said in a statement.

The “sandwich’ generation” is expanding, as 38% of consumers between 61 to 65 have one or more living parents or in-laws. Furthermore, 28% are currently giving financial support to adult relatives, such as children aged 18 or older, grandchildren, parents, in-laws and other family members. Among this group, 18% reported that this financial assistance impacts their retirement savings and income.

Workplace Benefits

Although HR leaders are enhancing their offerings, there are still opportunities to better meet employee needs, according to new data from Morgan Stanley at Work’s fourth annual State of the Workplace Financial Benefits Study. This data is based on a survey conducted between February 5 and February 12, which included 1,000 U.S.-employed adults and 600 HR leaders.

Most HR leaders, 91%, believe employees are experiencing financial hardships, an increase from 86% in 2021. Nearly half of employees (46%) reported in the past year they have faced crises or problems with financial management, and about 81% expressed a desire for their employers to be more involved in addressing financial challenges.

“The workplace is particularly crucial for those caring for elderly parents and their own children. Our data captures a significant population of this cohort, and more broadly we certainly hear from our clients that this sandwich generation is seeking comprehensive benefits to help manage and plan for the financial futures of themselves and their families,” says Scott Whatley, head of Morgan Stanley at Work.

Among employees, 85% said their company needs to do a better job explaining how to maximize the financial benefits offered, with 96% of HR leaders agreeing.

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