Fee Base

Plan sponsors may say they are comfortable with fee disclosure efforts as they exist now, but a new study asserts that many of them are wracked with under-the-surface doubts about their understanding of the fee issue. According to study sponsor Chatham Partners, 77% of sponsors indicated that current disclosure levels are sufficient. However, only 58% of respondents feel confident about their understanding of their plan’s overall costs, despite realizing the importance of understanding these costs (79%).

Sponsors are dissatisfied with the level of transparency offered by their existing providers, as evidenced by low scores given to fees being easy to compare to other providers (34%), revenue-sharing disclosure (38%), and fee transparency (42%).

Plan sponsor concerns about potential legal action, higher plan expenses, and participants selecting suboptimal investments make them less satisfied with their current fee structure and more likely to switch providers, according to Chatham. “Plan sponsors are starting to realize what they don’t know about fees. The collective epiphany is going to play into the hands of retirement plan providers at the leading edge of full disclosure,” noted Andrew McCollum, Managing Director at Chatham Partners.

Size Differences

The results of the analysis also reveal perception differences depending on the size of the retirement plan. Sponsors of the largest plans (greater than $100 million in assets) have a deeper understanding of and place greater importance on understanding plan fees than sponsors of the smallest plans (less than $3 million in assets).

There also appears to be a connection between level of understanding and satisfaction levels, as larger plans are considerably more satisfied with all fee attributes, most notably the total cost of the plan and value for the money.

Additionally, there is variation between large and small plan sponsors over their concerns regarding fee transparency and disclosure. Specifically, plans with more than $100 million in assets are most concerned that lack of disclosure will lead to legal action by participants, while plans with less than $3 million in assets are most worried that lack of disclosure will lead to higher plan expenses. The vast majority of plan sponsors surveyed (74%) believe that participant fee disclosure is sufficient. However, it is clear that current disclosure efforts have not been entirely successful, as only 22% of plan sponsors report that participants are highly aware of the total cost to them.

Though few respondents indicate that fee transparency is the most important factor in their decisionmaking process, the vast majority of plan sponsors surveyed (81%) indicate that it plays an important role in the outcome of their selection of providers.

The report is based on online surveys completed by 416 plan sponsors affiliated with corporate defined contribution plans ranging in size from $1 million to more than $1 billion in assets.

*Illustration by Chirstopher Silas Neal