In Practice April 21, 2008

Plan Sponsors Paying for Adviser Services Directly

The majority of retirement plan expenses are paid by the plan sponsor, but many plan sponsors do not review the fees paid to their adviser, a recent survey said.

Reported by

Ellie Behling

A survey of retirement plan sponsors by Grant Thornton, in conjunction with Drinker Biddle & Reath LLP and Plan Sponsor Advisors, LLC, said at 70% of plans, adviser and consultant fees are paid by the plan sponsor, while participants pay at 27% of plans.

Over one-third of plan sponsors (38%) review broker and adviser fees annually, but a large chunk of them (28%) reported never reviewing adviser and broker fees.

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Only 72% of plan sponsors indicated that they understood the fees their plans were paying and the revenue streams being earned by vendors, which is an increase from 65% last year. (Seventy-four percent of plan sponsors understand the fees for brokers and financial advisers.)

Investments

A large percentage of plan sponsors use a consultant or adviser to monitor investments and create investment policy statements (IPS), the survey said.

Eighty-two percent of sponsors reported having an investment policy statement (IPS), with 45% of them being created by a consultant or adviser. Four in 10 respondents said they regularly reviewed their IPS to make sure they are on target.

The survey also said 60% of plan sponsors are monitoring their investments quarterly and 12% are monitoring annually, in keeping with last year’s results. Nearly half perform this function internally, and 36% rely on a consultant or adviser.

In the latest sign of a hot market for asset allocation funds, 77% of plan sponsors thinking about changing their default options said they are moving toward risk-based or target-date funds.

“A sound investment policy is an invaluable tool for the effective management of a plan’s investment options with today’s supply of fund choices,” said Debbie Smith, an employee benefits practice partner with Grant Thornton LLP. “We’re encouraged by the sound practices of the plan sponsors we surveyed and the commitment shown to maintaining accurate records, which is vital to accountability of investment decisions. We’re interested to see the future effects of the PPA on default options in the coming years.”

The survey was conducted online from October through November 2007, with 183 independent plan sponsors participating. Participants in the survey primarily held chief financial officer (CFO) or human resources/benefits manager titles.