Data & ResearchMarch 16, 2016

401k Averages Book Sees DC Plan Fees Down Another Notch

A single basis point drop in the average U.S. retirement plan fee may not seem that significant, but magnified across hundreds of billions in assets it represents an important win for plan participants.

Reported by John Manganaro

The average total plan cost for a small retirement plan with 100 participants and at least $5 million in assets declined from 1.29% to 1.28% over the past year, according to the 16th edition of the 401k Averages Book.

Published since 1995, the 401k Averages Book strives to be an affordable-but-useful information tool to help retirement plan industry providers and clients do effective benchmarking and make comparative plan design decisions.

The 2016 update shows the average total plan cost for large retirement plans—with at least 1,000 participants and $5 million assets—declined even more than for small plans, from 1.03% to 0.97%.

“On average 401k investment fees continue to decline in both the small and large plan market,” explains David Huntley, co-author of the 401k Averages Book, calling the findings very encouraging. “401(k) fees have been trending down for years [since 2010] and plan participants have benefited because of it. The research shows how the average total plan cost for a 100 participant plan has decreased from 1.33% in 2010 to 1.28% in 2015.”

Stripping out administration and other costs, researchers find the average investment cost for a small retirement plan declined from 1.22% to 1.21% over the past year, while the average investment cost for a large retirement plan declined from 1.01% to 0.95%. Also important to note, even amid the serious year-over-year fee compression, there “continues to be an uptick in 401(k) lawsuits, and some have targeted revenue sharing as well as other fiduciary issues.”

Joseph Valletta, the other co-author of the 401k Averages Book, explains revenue sharing itself is not a harmful or illegal practice, but “when a sponsor does not know how much revenue sharing is generated, how it’s used or how it compares with industry peers, that might cause issues.” He observes that small plans currently generates 0.66% of revenue sharing, while a large plan generates 0.40%.

The 16th edition of the 401k Averages Book is available for $95 and can be purchased by calling (888) 401-3089 or online at www.401ksource.com.