Defined Contribution / 401(k) Fee Study
Inside the Structure of Defined Contribution / 401(k) Plan Fees: A Study Assessing the Mechanics of What Drives the 'All-In' Fee
Conducted by Deloitte for the Investment Company InstituteSpring 2009 - updated June 2009
2
I. Background 3
• Report Disclosure 4
II. Executive Summary 5
• Many Fee Arrangements Exist 5
• A Means to Compare: The 'All-In' Fee 6
• Apparent 'All-In' Fee Drivers – Primary and Secondary 7
• Summary 8
III. Survey Respondents 9
Plan Sponsor Demographics 9•
Retirement Service Providers 10•
Retirement Service Provider / Plan Sponsor Relationships 11•
Participant Accounts 12•
Plan Design Features 13•
Investment Options 14•
IV. The Mechanics of Plan Fees 15
V. The 'All-In' Fee 16
Composition of the 'All-In' Fee 16•
Payer of Fees 17•
Summary 'All-In' Fee Results 18•
VI. 'All-In' Fee Drivers 19
Primary 'All-In' Fee Drivers 19•
Secondary 'All-In' Fee Drivers 22•
VII. Summary 31
Appendix: Glossary of Terms 32
Table of Contents
Defined Contribution / 401(k) Fee Study 3
I. Background
BecauserelianceondefinedcontributionplansasaretirementsavingsvehicleintheUnitedStateshasgrown,theseplanshavecomeundergreaterscrutinytoensurethattheywillhelpprovideasecureretirementforthemillionsofworkingAmericanswhohaveaccesstothem.Recently,bothregulatorsandmembersofCongresshavebeenlookingcloselyathowserviceprovidersdisclosefeesandtheDepartmentofLaborhasproposedfeedisclosureregulationstohelpplansponsorsandparticipantsbetterunderstandwhattheirplanscost.Acrossthemarketplace,heightenedattentiontoplancostshasincreasedinterestinhowfeestructuresworkandthekeyvariablesthatdrivefees.
Aspartofanongoingcomprehensiveresearchprogram,theInvestmentCompanyInstitute(ICI)engagedDeloittetoconductaSurveyofdefinedcontributionplansponsorsandcreatethisreporttoshedlightonhowfeestructuresworkwithinthedefinedcontributionplanmarket.Specifically,thisreportaddresses:
Themechanicsofplanfeestructures;•Componentsofplanfees;and•Primaryandsecondaryfactorsthatimpactfees•("feedrivers").
ApproachToaccomplishtheobjectivesoftheStudy,DeloitteandICIsupplementedtheircollectiveindustryexperiencewithaconfidential,no-cost,web-basedSurveyconductedbyDeloitteinlate2008.ThepurposeoftheSurveywastocollectmarketdatatoexploreandunderstandhowfeesworkwithinthedefinedcontributionplanmarket.Intotal,130plansparticipatedintheSurveyproviding•detailedinformationregardingplancharacteristics,design,demographics,products,servicesandtheirassociatedfees.Over1,000dataelementsweregatheredfromeach•plan,coveringplandesign,investmentoptionsandplan,participantandinvestmentfeeinformation.Subsequenttothecompletionoftheweb-basedSurvey,•Deloitteassessedtheinformationforcompletenessandapparentaccuracy.Inaddition,Deloitteconductedpost-Survey•conversationswiththemajorityofplansponsorstoclarifyresponses.Sixretirementserviceproviderswerealsointerviewed•togainaninstitutionalperspectiveontheresults.Commentsandfeedbackreceivedfromtheseretirementserviceproviderwereconsideredandaddressedthroughoutthisreport.However,aformalsurveyofretirementserviceproviderswasnotconductedaspartoftheSurvey.Insomeinstances,resultsoftheSurveywerecompared•toother401(k)industrystudiestoassessfindingsandinterpretresults.
Increasing understanding of the mechanics of plan fees is a top priority within the retirement marketplace.
Asusedinthisdocument,“Deloitte”meansDeloitteConsultingLLP,asubsidiaryofDeloitteLLP.Pleaseseewww.deloitte.com/us/aboutforadetaileddescriptionofthelegalstructureofDeloitteLLPanditssubsidiaries.
4
WhiletheSurveyisnotintendedtobeastatisticalrepresentationofthedefinedcontribution/401(k)marketplace,thedemographicsoftheplansparticipatingintheSurveyappeartobesimilartothebroaderdefinedcontributionplanmarket(e.g.,averageaccountbalance,numberofinvestmentoptions,averageparticipantcontributionrate,assetallocation,plandesign).AlthoughDeloitteandICIbelievetheSurveyresultsarerepresentative,theycannotbeprojectedtotheentirepopulationofU.S.401(k)plans.1
TheSurveyresultswerepreparedutilizingprimarydataobtainedfromsourcesdeemedtobereliable,includingindividualsattheparticipatingplansponsorandretirementserviceproviderorganizations.Itisimportanttonotethatsomeplansponsorsdidnotrespondtoeveryquestion.DeloitteandICImakenorepresentationorwarrantyregardingtheaccuracyofdataprovided.
Inseveralinstances,thereportincludesobservationsandinterpretationsoftheSurveyresultsbasedonthecollectiveresearchandmarketplaceexperienceofbothDeloitteandICI.
TheSurveyreportisdesignedtomaintainplanrespondentconfidentiality.ParticipatingplansponsorandproviderdatawillnotbedisclosedorusedinanywayoutsideofthisStudy.
TheSurveydoesnotevaluatequalityorvalueofservicesprovided–bothofwhichcanimpactfees.Qualityofservicevarieswithrespecttotherangeofplanningandguidancetoolsavailabletotheplansponsorand
Report Disclosure
participants;educationalmaterials;employeemeetings;andothercomponentsofcustomerservice.Qualitativedifferencesinservicesmayaffectfeesbutarenoteasilyquantifiedandarenotaddressedinthisreport.
NopartofthisreportmaybereproducedinanyformorbyanymeanswithoutthewrittenpermissionofDeloitte.
TheInvestmentCompanyInstitute(ICI)isthenationalassociationofU.S.investmentcompanies.Pleaseseewww.ici.orgformoreinformationonICI.
***ThisreportwasoriginallypostedinApril2009,however,correctionoftwominorerrorsonpages24and30resultedinre-postinginJune2009.
Page24:“Basedontheanalysisperformed,a10percentagepointhigherassetallocationtoequities(e.g.,equityassetsrisefrom40%to50%ofplanassets)resultedin0.4 basis point or 0.004% higher 'all-in' fee.”Thecorrectedamountis“…resulted in a 3.9 basis point or 0.039 percentage point higher ‘all-in’ fee.”
Page30:“Despitetherelativelylargedifferencein'all-in'feesbetweenplanswithandwithoutauto-enrollmentthatisdisplayedacrosssmallerplansizes,theresultsoftheregressionanalysissuggestasmallerimpactof16 basis points or 0.16 percentage points.” Thecorrectedamountis“14 basis points or 0.14 percentage points.”
Forthecompleteregressionanalysis,seetheappendix.
1 DepartmentofLaborForm5500dataforplan-year2006indicatethatthemicroplansegment(planswithlessthan$1millioninassets)represent62%ofall401(k)plans,4%ofall401(k)planassets,and10%ofactive401(k)planparticipants.Thesmallplansegment(planswith$1milliontolessthan$10millioninassets)accountfor30%ofplans,14%ofassets,and20%ofactiveparticipants.Mid-sizedplans(thosewith$10milliontolessthan$100millioninassets)are4%ofplans,16%ofassets,and23%ofactiveparticipants.Largerplans(thosewith$100millionormoreinassets)wereonly1%ofplans,butincluded66%ofall401(k)planassets,and46%ofallactive401(k)participants.(Form5500dataindicate3%ofplanscovering0.4%ofactiveparticipantsdidnotreportassets.)SeeU.S.DepartmentofLabor,EmployeeBenefitsSecurityAdministration, Private Pension Plan Bulletin: Abstract of 2006 Form 5500 Annual Reports (Dec.2008),availableatwww.dol.gov/ebsa/PDF/2006pensionplanbulletin.PDF.
Defined Contribution / 401(k) Fee Study 5
II. Executive Summary
DefinedcontributionplansareanimportantcomponentofAmericans'retirementsavings.Theirimportanceinhouseholds'savingforretirementhasledtoincreasedscrutinyofdefinedcontributionplansattheregulatoryandlegislativelevel–withafocusonmoretransparencyinfeedisclosure.Therippleeffectofthisscrutinyinthemarketplacehasbeenanincreasedneedforplansponsorstomorefullyunderstandthefeestructuresandkeyfeedriversindefinedcontributionplans.
Aspartofongoingresearchprograms,ICIandDeloittecombinedeffortstoconductresearchintofeestructureswithinthedefinedcontributionplanmarket.ThedataandobservationsinthisreportarebasedontheSurveyresponsesof130plans.TheSurveywasconductedonlineandthroughplansponsorinterviewsbetweenNovember1andDecember31,2008.
Many Fee Arrangements ExistOnthesurface,aSurveyondefinedcontribution/401(k)feesmightseemstraight-forwardconsideringtheservicesrequiredbyaplanarerelativelyconsistentacrossthemarket.Forexample,definedcontributionplansgenerallyrequirecompliance(tomakesuretheplanisadministeredproperly),audit,Form5500,andtrusteeservices.Inaddition,recordkeeping,whichmaintainsparticipants’accountsandprocessesparticipants’transactions,oftenalsoincludeseducationalservices,materialsandcommunications.However,theStudyfoundtheretobevariationonhowfeesarechargedfordefinedcontributionplanservices.
Recordkeepingandadministrativeservicescanbechargeddirectlytotheplanorparticipantorcanbeassessedasanasset-basedfee.Also,aportionoftheexpenseratioofaninvestmentoptioncanbeusedtocoversomeoftherecordkeepingandadministrativecosts.Asset-basedinvestment-relatedfeesrepresentaboutthree-quarters(74%)ofdefinedcontribution/401(k)planfeesandexpensesfortheplansintheSurvey.Asset-basedinvestmentexpensesgenerallyincludethreebasiccomponents:(1)investmentmanagementfees,which
Exhibit1
RecordkeepingPlanandParticipantServicing
ComplianceLegalAudit
Form5500Trustee
CompanyStockCommunications
Education
InvestmentManagers
InvestmentConsultantFinancialAdvice
Defined Contribution Total ‘All-in’ Fees
Per Plan Charges Asset-Based FeesAsset-BasedInvestment
ExpensesOther
Per Participant Charges
arepaidtotheinvestment'sportfoliomanagers(oftenreferredtoasinvestmentadvisers);(2)distributionand/orservicefees(inthecaseofmutualfunds,theseinclude12b-1fees);and(3)otherfeesoftheinvestmentoption,includingfeestocovercustodial,legal,transferagent(inthecaseofmutualfunds),recordkeeping,andotheroperatingexpenses.Portionsofthedistributionand/orservicefeesandotherfeesmaybeusedtocompensatethefinancialprofessional(e.g.individualbrokerorinvestmentmanagementfirm)fortheservicesprovidedtotheplananditsparticipantsandtooffsetrecordkeepingandadministrationcosts.
Allofthedifferentservicesandassociatedfeescanbecombinedtogetherinavarietyofdifferentwaysbasedontherequirementsoftheplansponsor.Asplansponsorsnegotiatewithretirementserviceproviderstoobtainservicesfortheirplans,arangeofscenariosorarrangementsisgenerallyconsidered(e.g.,numberandtypesofinvestmentoptions,proprietaryversusnon-proprietaryfunds,rangeofparticipantcommunicationsandeducationalservicesthatwillbeprovided).Plansponsorsgenerallyarenotpresentedasinglefeequote,butratherarangeofoptionsfromeachserviceprovidercompetingfortheplansponsor'sbusiness.
Exhibit1
6
A Means to Compare: The 'All-in' FeeDuetothevarietyoffeeandservicestructuresthatexistinthedefinedcontribution/401(k)market,thisStudycreatedabasisofcomparisonwhichnormalizedthefeestructurevariation.TheStudycreatedananalyticaltoolthatrepresentsthebottom-lineintermsofalladministrativeandinvestment-relatedfeesindefinedcontribution/401(k)plans.ThroughthedatacollectedandanalyzedinthisSurvey,an'all-in'feewascalculatedforeachplan.The'all-in'feeincorporatesalladministration,recordkeepingandinvestmentfeeswhetherassessedataplanlevel,participantlevelorasanasset-basedfee,acrossallmultiplepartiesprovidingservicestotheplan.
The'all-in'feeexcludesparticipantactivity-relatedfeesthatonlyapplytoparticularparticipantsengagedintheactivity(e.g.,loanfees).
Totalingalladministration,recordkeepingandinvestmentfees,themedian‘all-in’feefortheplansintheSurveywas0.72%ofassetsorapproximately$350perparticipantforaparticipantwithanaccountbalanceof$48,522(themedianparticipantaverageaccountbalanceamongplansinthisSurvey).Thedatashow10%ofplansintheStudyhadan'all-in'feeof0.35%ofassetsorless,while10%ofplanshadan'all-in'feeof1.72%ofassetsormore.
'All-in' Fee: % of Assets (All Plans)
0.93%
0.72%
0.35%
1.72%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
Mean Median 10thPercentile 90thPercentile
Exhibit2Exhibit2
Defined Contribution / 401(k) Fee Study 7
Apparent 'All-In' Fee Drivers – Primary and SecondaryThe'all-in'feevariedwidelyduetoanumberofplan-relatedvariables.However,totalplanassetsappearedtobethemostsignificantdriveroffees.Withthatsaid,furtheranalysisshowsthatamoremeaningfulwaytoviewplanassetsizeisthroughtwoindependentfactors:
Numberofparticipants;and•Averageaccountbalance.•
Thenumberofparticipantsandtheaverageaccountbalancearebothnegativelycorrelatedwiththe'all-in'fee.Moreparticipantsandhigheraverageaccountbalancesbothtendedtobeassociatedwithlowerfeesasapercentageofassets.Includingbothmeasuresoftheplansizeinthestatisticalregressionanalysismoreaccuratelypredictsthedifferencesinthe'all-in'feeofplansacrosstheSurveypopulation.
Withinany401(k)plan,therearefixedcostsrequiredtostartupandruntheplan,muchofwhichisdrivenbylegalandregulatoryrequirements.Forexample,thereareregulationsrequiringnondiscriminationtesting,thatmoniesarecreditedtoaccountsinatimelymatter,planaudits,creatingsummaryplandescriptions,andannualForm5500filing,amongothers.TheSurveyresultsappeartoindicateeconomiesaregainedasaplangrowsinsize,becausethesefixedcostscanbespreadovermoreparticipantsand/oralargerassetbase.
Inadditiontoplansize,anumberofotherfactorshelpexplainthevariabilityinplanfees.Usingalinearregressionanalysis,theStudyidentifiedthesevariablesandtheyareconsideredsecondarydriversinthisStudy.
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
$10,000 $30,000 $50,000 $70,000 $90,000 $110,000 $130,000 $150,000
FeesasaPercentofAssets
AverageAccountBalance
10Participants 100 1000 10,000 50,000
Exhibit3
Predicted Fees as a Percent of Assets by Average Account Size and Number of Participants (All Other Explanatory Variables = Means)
1,000
Thesesecondarydriverscanhelpexplainwhyplansofsimilarassetorparticipantsizemayhavedifferentoverallcosts.Oneormoreofthefollowingcharacteristicsappearstoberelatedtolower'all-in'fees:
Higherparticipantandemployercontributionrates;•Lowerallocationofassetsinequity-orientedassetclasses;•Useofauto-enrollment;•Fewerplansponsorbusinesslocationsreducingtheservicingcomplexity;•Otherplansponsorbusinessrelationshipswiththeserviceprovider(e.g.,definedbenefit•planorhealthandwelfareplan).
Whencombiningtheprimaryandsecondarydriversinaregressionanalysis,theresultsshowedarelativelyhighcorrelationwiththe'all-in'fee(R2of0.6269)whentreatingthe'all-in'fee(measuredasapercentageofassets)asthedependentvariable.Combiningplansize2withthesecondarydrivervariables,apredictivechartcanbecreatedthatdisplaysan'all-in'feebyplansizethatisconsistentwiththeSurveyresults.
Exhibit3
2PlanSizeenteredtheregressionequationastwovariables:LN(averageaccountbalance)andLN(numberofparticipants).
8
SummaryThisreportwasdevelopedtoprovidemarketplaceSurveydatathatcanhelpexplainthemechanics,componentsanddriversofdefinedcontribution/401(k)planfees.ThisStudycreatedananalyticalbottom-linemeasure—an'all-in'fee—tocomparetotalplancostsacrossthevariedpricingpractices(per-planfees,per-participantfees,asset-basedfees)usedindefinedcontribution/401(k)plans.
Tofacilitateamoredirectcomparisonofplanfees,an'all-in'feewascreatedbasedontheSurveyresponses.Theresultsshowedthatthe'all-in'feevariesacrossplansofdifferentplansizemarketsegments.TheSurveyfoundthatasset-basedinvestment-relatedfeesrepresentaboutthree-quarters(74%)ofdefinedcontribution/401(k)planfeesandexpenses.Inmanyplans,aportionofthesefeesisusedtopayforsomeoralloftheadministrativeandrecordkeepingservicesoftheplans,inadditiontoinvestmentmanagement.
Theprimarydriversoffeesareaverageaccountbalanceandnumberofparticipants,whichcombined,representplansize.Fees,measuredasapercentageofassets,tendtodeclineasaccountbalancesandnumberofparticipantsincrease.Definedcontribution/401(k)planshavefixedadministrativecostsnecessarytorunaplanthattendtocausesmallerplanstohavehigherrelativefeesasapercentageofassetsorperparticipant.Asaplangrowsinsize,economiesaregainedwhichspreadthefixedcostsovermoreparticipantsandalargerassetbase.
Additionalinfluencersoffeesthatwerefoundtoappeartofurtherhelpexplainvariancesinthe'all-in'feeincludeparticipantandemployercontributionrates,aplan'sassetallocation,complexity,additionalplansponsorrelationshipswiththeserviceprovider,andplandesign(autoenrollment).
Anumberofothervariablesweretestedandappearnottobedirectdriversofthe'all-in'fee.Thenumberofpayrolls,whichmighthaveincreasedcomplexity,wasnotfoundtobeadriveroffees.Thetypeofserviceprovider(mutualfundcompany,lifeinsurancecompany,bank,thirdpartyadministrator)andtenurewiththeserviceprovideralsowerenotfoundtobesignificantfactors.Inaddition,thepercentageofassetsinvestedintheinvestmentproductsoftheserviceprovider(proprietaryinvestments)didnotappeartohaveasignificantimpactonfees.
TheremainderofthisreportdiscussestherangeofplansponsorsandretirementserviceprovidersrepresentedbytheSurvey;theconstructionandanalysisofthetotalfeesindefinedcontribution/401(k)plans;andthefactorsthatinfluencefees,referredtoas“drivers.”SectionIIIdescribesthecharacteristicsoftheplansponsorsthatparticipatedintheSurvey.SectionIVexplainsthemechanicsofhowfeesarechargedandtheservicesthattheplansandtheirparticipantsreceiveforthefees.SectionVintroducestheconceptofthecomprehensivebottom-lineor'all-in'fee,andhowthismeasurefacilitatescomparisonsacrossplans.SectionVIidentifiesthekeydriversthatexplainfeedifferencesamongplans.SectionVIIsummarizestheStudy’sfindings.
Defined Contribution / 401(k) Fee Study 9
III. Survey Respondents
ThissectionhighlightsthecharacteristicsoftheplansponsorsthatparticipatedintheSurveyincludingtheirdemographics,providerrelationships,sizeandplandesignfeatures.ThepurposeistoprovidecontextwhenassessingplanfeesastotheSurveyparticipants.
Plan Sponsor DemographicsAtotalof117employersrepresenting130definedcontributionplansparticipatedintheDefinedContribution/401(k)FeeStudyin2008.ForpurposesofthisStudy,thedemographicinformationonthefollowingpageswasusedtohelpunderstandwhatspecificcharacteristics,ifany,driveplanfees.
Plansponsorrespondentsrepresentedmultiplegeographicregions,industriesandplansizesasmeasuredbyassetsandnumberofparticipants.
Toallowforadetailedviewintovariationoffeesbymarketsizesegment,plansponsorresponsesweregroupedandanalyzedacrossfiveplansizesegmentsasmeasuredbyplanassets.
Plans by Asset Size Segment
# of Plans
% of Plans
Micro<$1M 15 12%
Small$1M–<$10M 11 8%
Mid$10M–<$100M 41 32%
Large$100M–$500M 37 28%
Mega>$500M 26 20%
Exhibit4
Plans by Participant Size Segment
# of Plans
% of Plans
<100 20 15%
100–499 14 11%
500–999 10 8%
1,000–4,999 41 32%
5,000–9,999 24 18%
10,000+ 21 16%
Note:Basedontotalparticipantswithabalance(activeandterminated).
Exhibit5
Geographical Location by Percent of Plans
38%
22%
21%
19%
Midwest South West Northeast
37
1513 12
97 7 6
4 4 4 3 3 3 2 1
0
5
10
15
20
25
30
35
40
Count of Plans in Survey by Industry
Exhibit7Exhibit7
Exhibit6
10
Retirement Service Providers Theemployer,orplansponsor,offersthedefinedcontributionplantoitsemployeesaspartofitsemployeebenefitandcompensationpackage.Theplansponsorthenengagesserviceprovidersthatseetothefunctionaloperationoftheplan.TheSurveyconsideredthefirmhiredtohandletheplanrecordkeepingtobethe“retirementserviceprovider”totheplan.Recordkeepingservicesareperformedbyavarietyofserviceproviders,includingmutualfundcompanies,insurancecompanies,banksorthirdpartyadministrators(TPAs).
Recordkeepingservicesincludepostingpayrollcontributions,planpayments,earningsandadjustments;planandparticipantservicingandcommunications;compliancetestingandotherregulatoryrequirements;andeducationalmaterialsandservices.Withrespecttosomeactivities,plansponsorsmayselectvaryingdegreesofrecordkeepingserviceoptions.Forexample,amongSurveyrespondents75%heldgroupemployeemeetings,22%offeredindividualemployeemeetings,and19%offeredboth.Morethanone-third(36%)ofrespondingplanshadfinancialadvice/guidancethroughthird-partysoftwareavailablefortheirparticipants.Whilenearlyall(91%ofplans)procuredenrollmentkitsthroughtheirretirementserviceprovider,abouttwo-thirds(69%ofplans)arrangedforparticipantnewslettersand/orvideos.
Recordkeepingservicesforplansweredeliveredby31differentretirementserviceproviders.Theprovidersrepresented18ofthetop25recordkeepersasmeasuredbydefinedcontributionplanassets(Plan Sponsor, America’s Top Recordkeepers / June 2008).Atleastsixdifferentproviderswererepresentedwithineachplanassetsegmentanalyzed.
53%
18%
19%
11%
MutualFundCo. InsuranceCo. Banks TPAs
Type of Retirement Service Provider by Percent of Plans
Exhibit9Note:Retirementserviceproviderswerecategorizedbyprimarylineofbusiness.
Number of Retirement Service Providers Represented in Survey by Plan Asset Segment
Plan Asset Segment
Total Providers
Mutual Fund Companies
Insurance Companies
Banks TPAs
Micro <$1M 6 4 1 0 1
Small $1M–<$10M 8 2 3 1 2
Mid $10M–<$100M 17 4 3 7 3
Large $100M–$500M 16 4 4 5 3
Mega >$500M 10 5 2 2 1
Exhibit8
Exhibit9
More than half (53%) of plan sponsors in the Survey utilized mutual fund companies as their recordkeeper.
Defined Contribution / 401(k) Fee Study 11
Exhibit10
Other Relationships with Service Provider by Percent of Plans
65%
13%9%
4% 2% 0%
15%
0%
10%
20%
30%
40%
50%
60%
70%
None DefinedBenefitPlan
BankingServices
Health&WelfarePlan
PayrollProcessing
HumanResourceServices
Other
Note:Otherrelationshipsincludedinsurance,non-qualifiedplans,actuarial,ESOP,stockplansandoutsourcing.
28
10
3
11
3 1
14
1 2 3 5 3
43
3 4
18
9 9
45
1 2
9
20
13
AllPlans <$1M $1M- <$10M $10M- <$100M $100M- $500M >$500M
<3years 3to<5years 5to<10years 10+years Exhibit12
Number of Years with Retirement Service Provider by Number of Plans
Retirement Service Provider / Plan Sponsor RelationshipsTherelationshipsplansponsorshavewiththeirserviceproviderswereexaminedtodetermineanyimpactonoverallplanfees(e.g.,tenureoftheplanwiththeserviceproviderandancillarybusinessrelationships).
Ingeneral,therelationshipsbetweentheretirementserviceproviderandplansponsortendtobelong-term.Accordingtoplansponsorrespondents,eightyearswastheaveragetermwiththeircurrentserviceprovider.TheaverageterminthisSurveyisin-linewiththe2008 Deloitte 401(k) Benchmarking Survey3of436employers,wheretheaveragetenurewassevenyears.Acrossplansizes,amajority(68%)ofproviderrelationshipshaveexistedforfiveyearsorlonger.
Themajority(65%)ofplansinthisStudydidnothaveanyotherrelationshipswiththeirretirementserviceprovider,suchasdefinedbenefitplan,healthandwelfareplan,payroll,humanresourceorbankingservices.
WhilesecondaryrelationshipswerenotprevalentintheStudy,77%ofSurveyparticipantsindicatedtheplanutilizesoneormoreoftherecordkeeper’sproprietaryinvestmentsamonginvestmentoptionsofferedintheplan(e.g.,ABCmutualfundcompanyistherecordkeeperandtheplanutilizesABCmutualfunds;DEFbankistherecordkeeperandtheplanusesDEFmutualfundsorDEFcommingledtrustorseparateaccounts;XYZinsurancecompanyistherecordkeeperandtheplanusesXYZmutualfundsorXYZseparateaccounts).Amongrespondentswithproprietaryinvestmentsoffered,95%ofplanshadamixofproprietaryandnon-proprietaryinvestmentsandonly5%ofSurveyparticipantsexclusivelyhadproprietaryinvestmentoptionsintheirline-ups.
3401(k) Benchmarking Survey: 2008 Edition,DeloitteConsultingLLPandtheInternationalFoundationofEmployeeBenefitPlans,andtheInternationalSocietyofCertifiedEmployeeBenefitsSpecialists(ISCEBS)
Exhibit10
77%
23%
Useaproprietaryfundinplan'sinvestmentline-up
Donotuseaproprietaryfund
Percent of Plans Using At Least One Proprietary Investment Option
Exhibit11
Exhibit12
12
$48,522
$24,410
$34,607$31,079
$58,534
$75,432
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
AllPlans <$1M $1M- $10M $10M- $100M $100M-$500M
>$500M
Exhibit14
Median of Plan-Level Participant Average Account Balances by Asset Segment
$1M- <$10M $10M- <$100M
Participant AccountsTheSurveycapturedawiderangeofaverageparticipantaccountbalances,providinganopportunitytogaininsightintotheeconomicsofdefinedcontributionplans.Averageparticipantaccountbalancesvariedwidelyacrossplansponsorrespondentsandplansizesegments.Forexample,acrossallplansponsorrespondents,the10thpercentileplanhadanaverageparticipantaccountbalanceof$15,386,whilethe90thpercentileplanhadanaverageparticipantaccountbalanceseven-foldhigher($107,941).Similartootherdefinedcontributionplanreports,4theSurveyfoundanaverageparticipantaccountbalanceof$56,874(2008reporteddata).
Intermsofparticipantcontributions,theaverageratewas6.4%;morethanhalf(53%)ofplansreportedaverageparticipantcontributionratesbetween6%and10%.Plansponsorsalsoreportedarangeofemployercontributionactivity.Amongrespondentplans,92%hademployercontributions,typicallyintheformofamatchformula.Many(34%ofplans)matchedatleast100%uptoatleast3%ofpay,oftenthenmatchingat100%oralowerrateadditionalemployeecontributions.Another18%ofplansmatched50centsonthedollar(i.e.,50%)upto6%ofpay.
4ForexampletheEBRI/ICI401(k)database,reportingon21.8million401(k)participantsin56,232plansholding$1.4trillioninassets,hasanaverageparticipantaccountbalanceof$65,454atyear-end2007.FormoreinformationontheEBRI/ICIDatabase,seeHolden,VanDerhei,Alonso,andCopeland,"401(k)PlanAssetAllocation,AccountBalances,andLoanActivityin2007", ICIPerspective,vol.14,no.3,andEBRI Issue Brief,InvestmentCompanyInstituteandEmployeeBenefitResearchInstitute(Dec.2008),availableatwww.ici.org/pdf/per14-03.pdf.
Participant Average Account Balances – Plan Level Averages
$56,874
$48,522
$15,386
$107,941
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Mean Median 10thPercentile 90thPercentile
Exhibit13
Average Participant Contribution Rate Per Plan by Percent of Plans
7%
31%
53%
9%
<3% 3%to<6% 6%to<10% 10%+
Exhibit15
Exhibit13
Exhibit14
Exhibit15
Defined Contribution / 401(k) Fee Study 13
Plan Design FeaturesTheSurveyexaminedanumberofplandesignfeaturesincludingautomaticenrollment,automaticincreasesincontributions(alsocalledautostep-up),managedaccountsandcompanystock.
Themostcommonplandesignfeaturewasauto-enrollmentwith45%ofplansofferingthiscomponent(similartothe42%reportedintheDeloitte 2008 Annual 401(k) Benchmarking Survey).Ofthoseplanswithauto-enrollment,71%defaulttoalifecycletargetdateinvestmentoptionwithanaveragedefaultcontributionrateof3%.Automaticstep-uporincreaseisalessutilizedplandesignfeature;25%ofallplansintheSurveyhadautomaticstep-uporincrease.
TheSurveyfoundthatmost(82%)plansponsorsdonotoffermanagedaccounts.Aboutone-third(34%)ofrespondentshavecompanystockwithintheirplan.
Althoughnottechnicallypartofplandesign,additionalplancharacteristicswereanalyzed(numberoflocations,numberofpayrollsandmethodofsubmittingpayrolls),togaininsightastowhetherbusinesscomplexityimpactedplanfees.
Intermsofcomplexity,42%ofplansindicatedtheyhavemorethan20businesslocationswhile24%reportedone.TheSurveyalsofoundthat49%ofplansponsorsprocessonlyonepayrollandofthose,95%submittheirpayrollelectronically.Theimpactofsuchbusinesscomplexityonfeeswillbediscussedlaterinthisreport.
58
32 2444
72
98 10686
Auto-Enrollment AutoStep-Up ManagedAccounts CompanyStock
Yes No
Plan Design Feature Utilization by Number of Plans
Exhibit16
Number of Business Locations by Number of Plans
31
1513
16
55
0
10
20
30
40
50
60
1 2- 4 5- 9 10- 19 20+
Exhibit17
Number of Payrolls by Percent of Plans
49%
19%
32%
1 2 3ormoreExhibit18
Exhibit16
Exhibit17
Exhibit18
45% 25%18%
34%
14
Investment OptionsThenumberofinvestmentoptionsofferedvariedwidelyfromthreeinvestmentoptionstoapproximately100differentchoices.Theaveragenumberofinvestmentoptionsofferedperplanwas15(similartotheaverageof17investmentoptionsreportedintheDeloitte 2008 Annual 401(k) Benchmarking Survey).5
With91%ofplansofferingthem,mutualfundswerethemostcommoninvestmentvehicleusedbyplans.However,whenreviewinginvestmentvehicleusebyplansize,theStudyshowedagreaterutilizationofseparateandcommingledaccountsbylargerplans.
Equity(99%ofplans)andfixedincome(92%ofplans)investmentoptionsrepresentedthemostcommonassetclasstypesofferedamongplanswithintheSurvey.Thenextmostcommonassetclasstypesofferedweretargetdateinvestmentoptions(72%ofplans)andguaranteedinvestmentcontracts(GICs)andotherstablevaluefunds(70%ofplans).
Investment Vehicle Use
Percent of Total Assets in Survey
Percent of Plans Utilizing
MutualFund 41% 91%
SeparateAccount 25% 37%
CommingledTrust 25% 56%
Other* 9% 36%
Exhibit19
*OtherprimarilyincludedCompanyStock
Asset Class Use
Percent of Total Assets in Survey
Percent of Plans Utilizing
Equity 39% 99%
TargetDate 12% 72%
StableValue/GICs 12% 70%
FixedIncome 11% 92%
CompanyStock 8% 34%
Balanced 6% 49%
MoneyMarket 5% 45%
Lifestyle 2% 27%
Other* 6% 21%
Exhibit20
*Otherincludedloans,self-directedbrokeragebalances
The number of plan investment options varied around an average of 15.
5Countsasuiteoftargetdateinvestmentoptionsasoneinvestmentoption.
Defined Contribution / 401(k) Fee Study 15
Recordkeeping&AdministrationPlanServiceandConsulting
Legal,ComplianceandRegulatory
DirectFees:$PerParticipant;%AssetBased;TransactionalFees
Defined Contribution / 401(k) Plan Fee M echanics
ServicesProvidedFeePayment/FormofFeePayment
ParticipantService,Education,AdviceandCommunication
Employer / Plan
Participants
Recordkeeper / Retirement Service
Provider
Investment M anager
Recordkeeping/administrative
payment(%ofassets)
ExpenseRatio(%ofassets)
DirectFees:$PerParticipant;%AssetBased;TransactionalFees
AssetManagement
Recordkeeping;Distribution
Exhibit22
IV. The Mechanics of Plan Fees
Understandingthemechanicsofhowfeesarechargedisimportantwhenassessingplanfeesanddrivers.Definedcontribution/401(k)feescanbedividedintotwobasicparts:investmentfeesandadministrativefees.
Attheircore,definedcontribution/401(k)plansareatax-advantagedsavingsvehicleinwhichindividualstypicallyselecttheassetallocationoftheiraccountsgiventherangeofinvestmentoptionsofferedbytheirplans.Akeycomponentofa401(k)planistheassetmanagementservicesthattheinvestmentmanagerprovides.Theseasset-basedfeesarereportedasanexpenseratioofthemutualfund,separateaccount,commingledaccount,orotherinvestmentproductintheplan.
Unlikearetailinvestmentaccount,definedcontribution/401(k)plansmustcomplywithcertainregulationstoensurethattheyareequitableintheircoverageofworkers.Theseregulationscreateadditionaladministrativeneedsbeyondwhatonemightrequireinaretailinvestmentaccount.Administrativesupportservicesoftheplanareprovidedtotheemployerandparticipantintheformofrecordkeeping,consulting,legal,regulatory,compliance,communicationandeducationservices.
Paymentfortheseadministrativeservicescanbehandledinanumberofways.Theplansponsorwilldeterminewhopaysthefee(employerorparticipant)andhowitisassessed.Paymentforadministrativeservicesisgenerallyhandledthroughoneormoreofthefollowingmethods:
Dollarperparticipantfeesthatarepaidforbythe•employer,participantorboth;Dollarperplanfeesthatarepaidbytheemployer,•participantorboth;Asset-basedfees(basedonapercentageofplanor•investmentassets)thatarepaidforbytheemployer,participantorboth;andSpecializedparticipantactivityrelatedfees,mostoften•paidforbyparticipantsengagingintheactivity(e.g.loans).
Withindefinedcontribution/401(k)plans,themanagerofaninvestmentoptionmayagreetopayaportionofitsinvestmentfeetoaserviceprovider(inthecaseof401(k)plans,generallytherecordkeeper).Theamount(oftenreferredtoasrevenuesharing)isusedtohelpoffsetthecostoftheadministrativeserviceswhichwouldotherwisebechargeddirectlytotheplansand/orparticipants.Theinvestmentproviders'paymenttotherecordkeeperhelpscoverthecostsofrecordkeepingmultipleaccounts,whiletheinvestmentproviderservicesonelargeaccount.
Thesefeespresentthemselvesinavarietyofwaysincluding12b-1fees,sub-transferagencyfees,andshareholderservicingfees.Additionally,theyaresometimesnegotiatedbetweentheinvestmentmanagerandtheretirementserviceprovider(recordkeeper).Whenplansuseproprietaryinvestmentoptions—thatistheinvestmentproviderisaffiliatedwiththeplan’srecordkeeper—someofthoseasset-basedinvestmentfeescanbeusedtocoveradministrativeservices.
Exhibit22
16
V. The 'All-In' Fee
Toclearlyunderstandthetotalfeesofeachplan,thisStudycalculatedan'all-in'feetoallowforamoredirectcomparisonoffeesbeingpaidbytheplansparticipatingintheSurvey.Viewingfeesfroman'all-in'feeperspectiveaddressestherangeofvaryingstructuresandarrangementsforservicepaymentsdueto1)differentservicedeliverymechanismsandassociatedfeesand2)perplan,perparticipantandasset-basedfeetypes.Byrollingallservicesandfeetypesintoan'all-in'fee,thedatacanbeanalyzedmoreconsistentlyacrossplansandwithinsegmentstocompareanddiscerndifferentfeelevels.
Composition of the 'All-In' FeeForthepurposeofthisStudy,the'all-in'feewasbasedonfourprimaryserviceelements:
Investmentmanagement;1.Administration,recordkeeping,communicationand2.education;Financialadvicetoparticipants;and3.Plansponsorinvestmentconsulting.4.
Thetotalfeeelementsweredominatedbythefeesandexpensesofinvestments(74%)andseparatelychargedrecordkeeping/administrative(23%)fees.
Additionalhighlightsofthe'all-in'feecompositioninclude:
Plansponsorinvestmentadvisorfees−externaltothe•recordkeeper–werereportedby21%ofplans;andSeparatelychargedplanfeesforindependentfinancial•adviceforparticipantsexistedin8%ofplans.
Asset-based charges on investments make up the majority of the 'all-in' fee.
'All-in' Fee Service and Fee Components
Service Fee Component
Investmentmanagement1. Asset-basedchargestothemutualfund,commingledorseparateaccountusedtopayformanagingtheinvestment.
Administration,recordkeeping,2.communicationandeducation
Perparticipant,perplan,orasset-basedfeesusedtopayforrecordkeeping,planandparticipantservicing,communications,education,compliancetesting,Form5500,planaudit,legalandtrusteeservices.
Financialadvicetoparticipants3. Asset-basedorperparticipantfeesassociatedwithprovidingparticipantswithfinancialadviceandguidance(oftenprovidedthroughathirdparty'ssoftwaremodel).
Plansponsorinvestmentconsulting4. Feespaidtoanoutsideconsultanthiredbytheplansponsortoassistwithplanset-up,investmentdesign,searchandselectionofinvestmentmanagersandotherplanadvisoryservices.
Transactions and Other Items Not Included
Loaninitiationandmaintenance,qualifieddomesticrelationsorder,distributions,self-directedbrokerage,managedaccountsandothertransactionsdrivenbyparticipantelectionsandtypicallypaidforbytheindividualparticipantengagedinthespecializedactivity.
Exhibit23
Defined Contribution / 401(k) Fee Study 17
Payer of FeesWithregardtoplanfees,participantsbearthemajorityof401(k)costs.Similartoanyotheremployeebenefit(e.g.,healthinsurance),theemployerdetermineswhethertheemployee,employer,orbothwillpayforthebenefit.AccordingtoSurveyrespondents,planparticipantspay83%ofthetotalplanfeeswhileemployerscover13%andtheplanscover4%.*Oftheparticipantfees,amajorityisderivedfromtheinvestmentholdingsandtheasset-basedchargesprimarilyassociatedwithininvestmentexpenseratios(someofwhichmaybeusedtocoverrecordkeepingandadministration).
Employersthatsponsorplanswithlessthan$10millioninassets,onaverage,carriedalargershareofplanfeesthanemployerssponsoringplansof$10millionorgreaterinassets.Plansponsorsofplanswithlessthan$10millionin
Participants pay the majority of plan fees in the form of investment expense ratios.
83%
66% 66%
83%90%
86%
13%
31% 34%
11%
3%
13%
4% 3% 0%5% 6%
1%
AllPlans <$1M $1M- <$10M $10M- <$100M $100M- $500M >$500M
Participant Employer Plan
Payer of 'All-In' Fees - By Percent of Plans in Asset Segment
Exhibit24*
83%
13%
4%
Participant Employer Plan
Payer of Fees - All Plans
*
*OtherSurveyresultssuggestthisisgenerallyachievedthroughforfeitedemployercontributions.
assetspaidaboutone-thirdoftheirplans'all-in'fees;plansponsorswithlargerplanassets,onaverage,paidabout10%ofthe'all-in'fees.Thisbreakinbehavioracrossplansizemayreflectplansponsors’coveringthefixedcostsofrunningtheplaninthesmallplanspace,wheretherearefewerparticipantsandassetsoverwhichtospreadthecosts.
Exhibit25
Exhibit24
18
0.93%
0.72%
0.35%
1.72%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
Mean Median 10thPercentile 90thPercentile
Exhibit27
'All-in' Fee: % of Assets (All Plans)
$397$346
$103
$842
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Mean Median 10thPercentile 90thPercentile
'All-in' Fee: Annual Plan-Level Dollar Per Participant (All Plans)
Exhibit26
Exhibit27
Summary 'All-In' Fee ResultsForthisSurvey,the'all-in'feewasanalyzedintwoways,asapercentageofplanassetsandasanannualper-participantdollaramount.
Themedian'all-in'feewhichincludestherecordkeeping,administrativeandinvestmentfeesacrossallplansintheStudywas:
Percentageofplanassets–0.72%;or•Annualper-participantdollaramount–$346.•
Feesof401(k)plansvarygreatlyduetouniqueplancharacteristics,plan/investmentdesign,rangeandqualityofservicesprovided,andpricingstrategiesemployedbyretirementproviders.Assuch,therearealargenumberofvariablesimpactingthefeesthatplansandparticipantspay.Theremainingsectionsofthisreportexplorewhatappeartobepossibledriversofthisvariationatamacrolevel(allplans)andwithinindividualsegments(micro,small,mid,largeandmega-plansizemarkets).
Defined Contribution / 401(k) Fee Study 19
VI. 'All-In' Fee Drivers
InresponsetotheSurvey,plansponsorssupplieddataforavarietyofplanrelated,serviceproviderrelated,andplandesignvariables.Deloittelookedtoidentifywhatappearedtobetheprimarydriversoffeesacrossallplans(macroview)andapparentsecondarydriversoffeeswithinsimilarsizedplans(microview).
Theanalysisincludedassessingtheimpactandcorrelationofmultipleindependentvariablesonthedependentvariable–the'all-in'fee.Thedependentvariable(fees)wasassessedintwodifferentmethodsorcalculationsofthe'all-in'fee:1)the'all-in'feeasapercentageofassets,and2)annualdollarper-participantfee.
Primary 'All-In' Fee DriversPrimarydriversincludethekeyvariable(s)impactingfeesacrossplansintheSurvey.Theresultsofthestatisticalregressionanalysispointedtothesizeoftheplanasaprimarydriverofplanfees.Morespecifically,thenumberofparticipantsandaverageaccountbalanceweresignificantandhadindependenteffects:astheaverageaccountbalanceandnumberofparticipantsrise,feesasapercentageofassetstendtofall.
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
$1M-$10M
$10M-$100M
Median All-In Fee by Plan Asset Segment (% of Assets)
Exhibit28
Averageaccountbalance
Numberofparticipants
Yearswithcurrentprovider
Providerindustrytype
Providersize
Plansponsorindustry
Geographiclocation
Employercontribution
Numberofinvestmentoptions
Numberofpayrolls
Participantcontributionrates
Companystock
Investmentvehicles
Investmentallocation
Proprietary/non-proprietary
Auto-enrollment/step-up
Numberoflocations
Planassetsize
Plan Related
Potential Drivers
Service Provider Related
Plan Design
Variables
Providerrelationship
Influencer of Fees
Exhibit28
20
Plan Asset SizeAtthemacrolevel,theprimarydriveroffeesappearstobeplanassetsize,withthenumberofparticipantsandaverageaccountbalancecontributingsignificantlyandindependentlytothefeelevels.
Keypointsabouttheprimarydriveroffees:Asplansizeincreasesinassetsandparticipants,the'all-in'•fee(measuredasapercentageofassets)decreases.Onaverage,themedian'all-in'feewithinanassetsegment•was20%lessforplanswithaverageaccountbalancesover$100,000.Whilethemedianplan's'all-in'feewas0.72%ofassets,•medianfeesamongplanswithlessthan$1millioninassetswere1.89%ofplanassetsandforplanswithmorethan$500millioninassets,themedian'all-in'feewaslessthan0.50%.TheSurveydataindicatethatonceaplanreaches$10•millionintotalassets,or1,000participants,themedianfeedropstolessthan1%ofassets-suggestingthatalevelofeconomiesofscaleisobtained.Planswithsmallertotalassetstendtohavesmalleraverage•accountbalancescomparedtolargerplans,whichalsocontributestothehigherrelativecostsasapercentageofassetsofsmallerplans.
Economies of scale appear to be gained as a plan grows in size, lowering its 'all-in' fee.
1.89%
1.27%
0.78%0.61%
0.41%
2.37%
1.18%
0.89%0.69%
0.42%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
Median Average Median:AllPlans
'All-In' Fee by Asset Segment (% of Assets)
Exhibit30
$1M- <$10M $10M- <$100M
1.77%
0.81% 0.73%0.58%
0.49%
2.03%
0.89% 0.84%0.65%
0.48%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
<100 100- 999 1,000- 4,999 5,000- 9,999 10,000+
Median Average Median:AllPlans
Exhibit29
'All-In' Fee by Participant Count (% of Assets)
1.10%
2.20%
1.36%
0.99%0.77%
0.50%0.66%
1.77%
1.36%
0.73%0.63%
0.44%0.46%0.61%
0.75%
0.53%0.35%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
AllPlans <$1M $1M- $10M $10M- $100M $100M- $500M >$500M
<$25k $25k-$100k >$100k
Median 'All-In' Fee vs. Average Account Balance by Asset Segment (% of Assets)
Exhibit31
$1M- <$10M $10M- <$100M
<$25,000 $25,000- $100,000 >$100,000
Exhibit29
Exhibit30
Exhibit31
Defined Contribution / 401(k) Fee Study 21
Fixed vs. Variable Costs of PlansWhetherrequiredbylawordeemednecessarytorunaplan,therearefixedcostsforoperatinganyplan.Thesecostsincludeplanaccountingandaudit,legaladvice(suchasplandocumentservices),plancompliancetestingandbasicset-upcosts.Whiletherearesomevariablecomponentstothesecostsastheplansbecomelargerandmorecomplicated,thesenecessary/fixedaspectsarerequiredforallplans.
Aswithanyfixedcosts,themoreassetsoverwhichthesecostscanbespread,thelowerthelevelofcostsperdollarofassets.Hence,plansthathavefewerassetstospreadthesecostsovertendtohaveonaveragehigherfeeswhenmeasuredasapercentageofassets.Also,asthecostisspreadovermoreparticipants,thefixedcostsofaplandeclineperparticipant.
Investment Fees Investmentfeefindingsinclude:
Asset-basedfeesoninvestmentsrepresent74%ofthe•total'all-in'fees.Asplansizegrows,thedecliningfixedcostsasa•percentageofassetsallowsplanstomovetolowerexpenseratioinvestmentoptionssuchasinstitutionalshareclassmutualfundsandcommingledtrusts.ThisphenomenonwasseenintheStudyparticularlyinplanswithmorethan$250millioninassets.TheStudyfoundthatplanslargerthan$500millionin•assetshaddirectrecordkeepingchargesrepresenting
ahigherpercentageofthe'all-in'fee,suggestingachangeinpricingstructureinwhichthelargestplansuseinvestmentoptionsthatdonotsubsidizerecordkeepingandthenpayforrecordkeepingseparately.
Recordkeeping FeesRecordkeepingfeefindingsinclude:
Themicromarket(planassetslessthan$1millionin•assets)onaveragebearsthehighestrecordkeepingfees(measuredasapercentageofplanassets)believedtobeduetofixedrecordkeepingcostsassociatedwithaplan.Plansandassociatedrecordkeepingfeesappeartofallas•fixedcostsbecomealowerpercentageofassetsasplanassetsgrowlargerinsize.
22
0.35%
1.42%
0.87%
0.61%0.35%
0.14%
1.72%
2.30%
1.62%
1.30%
1.09%
0.61%
0.00%
1.00%
2.00%
3.00%
AllPlans <$1M $1M- $10M $10M- $100M $100M-$500M
>$500M
Exhibit32
$1M-<$10M
$10M-<$100M
Secondary 'All-In' Fee DriversRegressionanalysiswasusedtoidentifysecondarydriversthathelpexplainvariabilityoffeesinsimilarplans.Variabilityinfeesexistsbothacrossandwithinsimilarlysizedsegmentsoftheplanmarket.ThedatawithintheSurveythatappearedtohelpexplainthesevariancesaresummarizedonthefollowingpages.
SecondarydriversfromtheSurveyresultsappeartoinclude:
Participant and employer contribution rates• :Planswithhigherparticipantcontributionrateshadlowerfees.Plan asset allocation• :Thepercentageofassetsinvestedinequity-relatedassetclasseswaspositivelycorrelatedwiththe'all-in'fee.Complexity• :Thenumberofemployerlocationsimpactedthefeesinselectmarketsegments.Retirement service provider relationship• :Broaderbenefitrelationshipswithaproviderimpactedcostsinselectmarketsegments.Plan design:• Planswithautoenrollmentappearedtohavealower'all-in'feelevel.
Exhibit32
'All-In' Fee Range (% of Assets) - 10th and 90th Percentile of Plans
Defined Contribution / 401(k) Fee Study 23
Participant and Employer Contribution Rates Fromtheretirementserviceprovider’sperspective,planswithhighlevelsofparticipantoremployercontributions,whichmayleadtoplangrowth,aregenerallyviewedasmoreattractivethanthosewithlowerexpectedassetgrowth.Assuch,expectedplanassetgrowthmaybeakeyelementforserviceproviderstoconsiderwhendeterminingfees.
Plans with higher participant or employer contribution rates tended to have slightly lower 'all-in' fees.
1.46%
0.91%
0.65%0.60%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
<3% 3%to<6% 6%to<10% 10%+
Median 'All-In' Fee vs. Plan-Level Average Participant Contribution Rate (% of Assets)
Exhibit33
Providerscanplanforhigherexpectedinvestmentrevenuefromtheseplansoverlonger-termperiods,andassuch,mayofferpricing(andbeartherisk)alignedwiththoseexpectations.Thestatisticalregressionanalysisfoundthatbothparticipantcontributionratesandtheemployercontributionformulaoramount(asapercentageofparticipantpay)werenegativelyrelatedto'all-in'fees.Focusingonparticipantcontributionrates,acrossallplansizesintheSurvey,thereisamedian'all-in'feeof1.45%amongplanswithaverageparticipantcontributionratesof
1.45%
2.00%
1.20%
1.03%
1.47%
0.04%
0.91%
2.14%
1.49%
0.99%
0.74%
0.31%
0.64%
1.85%
1.14%
0.72%0.58%
0.44%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
AllPlans <$1M $1M- $10M $10M- $100M $100M- $500M >$500M
<3% 3%- 6% 6%+
Median 'All-In' Fee vs. Plan-Level Average Participant Contribution Rate by Asset Segment (% of Assets)
3%to<6% Exhibit34
lessthan3%ofpay,comparedwithamedian'all-in'feeof0.64%amongplanswithaverageparticipantcontributionratesof6%ormore.
Whenplansaregroupedbyplansizesegment,theaverageparticipantcontributionrateappearstoslightlyimpactthe'all-in'fee;however,thiseffectdoesnotappearconsistentlyacrossallmarketsizesegments.Inparticular,resultsofthe'all-in'feeanalysisshowthatthemegaplansizemarketdoesnotappeartobeinfluencedbyparticipantcontributionrates.
24
Plan Asset AllocationAsdescribedearlierinthisStudy,asignificantshareofthe'all-in'feewasattributabletoasset-basedinvestment-relatedfees.Analyzingtheinvestmentcostscanhelpexplainthevariancesinfeeswithinplanssimilarinsize.
Equityinvestmentoptionsaremorecostlytomanagethannon-equityorfixed-incomeinvestments.Asexpected,theSurveydatadisplayedhigheraverageasset-basedfeesforequityorientedinvestmentsversusothers.Asplanallocationtoequityinvestmentsincreases,thetotalinvestmentcostwillcorrespondinglytypicallyincrease.
Basedontheanalysisperformed,a10percentagepointhigherassetallocationtoequities(e.g.,equityassetsrisefrom40%to50%ofplanassets)resultedina3.9basispointor0.039percentagepointhigher'all-in'fee.
Conversely,asplanallocationtocashorfixed-incomestyleoptionsincreasestotalinvestmentfeestendtodecrease.Whencomparedtothemedianaverageexpenseratioofequities(0.77%),theSurveyshowed,medianinvestmentfeesfor:
Targetdateinvestmentoptions,whichholdamixof•equitiesandfixed-incomeinvestments,were12%lower(withamedianplan-levelaverageexpenseratioof0.68%).Fixed-incomeinvestmentoptionswere43%lower(with•amedianexpenseratioof0.44%),andMoneymarketinvestmentoptionswere45%lower•(withamedianexpenseratioof0.42%).
Plans with higher allocation of assets in equities tend to have higher investment fees.
Exhibit35
0.77%
0.44% 0.42%
0.34%
0.68%
0.60%0.57%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
Equity Fixed-Income MoneyMarket
GICsandOtherStable
Value
TargetDate Balanced Lifestyle
Median of Plan-Level Average Expense Ratio by Asset Class
Exhibit35
Moneymarketinvestmentoptionsandstablevaluefundsperformsimilarfunctionsascapitalpresentationvehiclesininvestmentline-upsinplans.IntheStudy,stablevaluefundsaremorefrequentlyusedbylargerplans,whichtend,ingeneral,tohavelower'all-in'feesandlowerinvestmentexpenses.Inaddition,stablevaluefunds,whicharenotregisteredundertheInvestmentCompanyActof1940,arenotsubjecttothestandardizedreportingofexpensesthatmutualfundsprovideinfundprospectuses.Thefeeformanagingastablevaluefund’sportfolioholdings,whichincludeGICsandsimilarinstruments,isoftenreportedasa“trusteefee”orsimilarfee.(Nevertheless,afewSurveyrespondentsreportednoexpensesfortheirstablevaluefund,andthesewereexcludedincalculatingthemedianfeereportedinExhibit35).
Defined Contribution / 401(k) Fee Study 25
Complexity AccordingtotheSurvey,thenumberofplansponsorlocationsincreasesboththecomplexityofservicingtheplanandthefeescharged(presumablyfortheaddedadministrativecost).
Asthenumberoflocationsincreases,typicallysodotheadministrativefees,specificallythoserelatedtoonsiteservices(e.g.,enrollmentmeetings,grouporindividualemployeemeetings).Thisfactoraccountsforsomevariationinfeesforplansofsimilarsizewithinthesmall-andmedium-sizedsegments.Forexample,feedifferencesaremostpronouncedinthoseplanswith$1milliontolessthan$10millioninassets.
More locations requiring service appears to increase fees in the small market segment.
Thefeesforthelargeandmegaplansizemarket(morethan$100millioninassets)aretheexceptionastheydonotappeartobeimpactedbyasponsor'snumberoflocations.
Additionally,theSurveyfoundanothertraditionalmeasureofcomplexity–numberofpayrolls–nottobeanindicatoroftotalplanfees.Planswithhighernumbersofpayrollswerenotfoundtohavehigherrecordkeepingcosts.Theelectronicnatureofacceptingpayrollsandprovidersrequiringinformationinstandardformatsappeartohavecreatedgreaterefficienciesthathelpoffsetthepotentialincreasedcomplexity.
0.94%
0.78% 0.81%
0.42%
1.44%
0.71%
0.58%
0.34%
1.60%
0.88%
0.66%
0.42%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
$1M- <$10M $10M- <$100M $100M- $500M >$500M
1- 4 5- 19 20+
Median 'All-In' Fee vs. Number of Locations
Exhibit36Exhibit36
26
1.26%
1.98%
1.14%
0.95%
0.70%
0.04%
0.70%
1.31%
0.72%0.61%
0.35%
0.72%
1.35% 1.41%
0.83%0.72%
0.42%
0.59%
1.51%
1.07%
0.69%0.59%
0.45%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
AllPlans <$1M $1M- $10M $10M- $100M $100M- $500M >$500M
<3 3+and<5 5+and<10 10+Exhibit37
<3years 3yearsto<5years 5yearsto<10years 10+years
$1M- <$10M $10M- <$100M
Median ‘All-In’ Fee vs. Years with Retirement Service Provider (% of Assets)
Retirement Service Provider RelationshipSomeaspectsoftheproviderrelationshipappeartoplayafactorinthefeespaidbyaplansponsorbasedontheresultsoftheSurvey.Asdiscussedearlier,thequalityofaprovider’sproductandserviceofferingwasnotcontemplatedaspartofthisStudy.However,thedatacapturedwithintheStudyhelpclarifysomeelementsoftherelationshipthatmayormaynotimpactfees.Theanalysisexploredthepotentialimpactofretirementserviceprovidertenure,retirementserviceprovidertypeandbroaderplanrelationships.
Retirement Service Provider TenureThereisnoclearconnectionbetweenhowlongaplan•hasbeenwithaserviceproviderandthetotalfeesofaplan.Thiscouldbearesultofmorefrequentcompetitivereviewsand/orcompetitivelyadjustingplanpricinginthemarketplaceduringthecourseoftherelationship(note:theSurveydidnotaskthefrequencyofreviewingplanfees).Largeplansappeartohavelongertenurewiththeir•currentproviderthansmallerplans.Theaveragetenure
A plan’s tenure with its current service provider does not appear to be an indicator of fee levels.
Exhibit37
ofplansunder$1millioninassetswasfouryears,whiletheaveragetenureofplansover$500millionwas13years.Changingprovidersinvolvesconversioncostanda•disruptiontoparticipants.Basedonexperienceinthemarketplace,plansmayelecttostaywiththeircurrentvendor(assumingfeesandservicesareotherwisecompetitive)toavoidtheburdenandcomplexityofchangingproviders.
Defined Contribution / 401(k) Fee Study 27
Retirement Service Provider TypeThe'all-in'feebyprovidertype(mutualfundcompany,•insurancecompany,bankorTPA)wasnotanidentifieddriverbasedontheresultsoftheSurvey.Thesizeoftheproviderwasnotanindicatoroftotal•feesbymarketsegment.Whenmeasuredintermsofparticipantsontherecordkeepingsystem,theSurveydatadidnotconsistentlyfindevidenceofsmallerfeesforthelargestproviders.Aprovider'smarketfocuscanbeadriveroffeelevels.•BasedontheresultsoftheSurvey,aprovider’sfocusandspecializationinaparticularmarket(e.g.,smallorlarge)isabetterindicatoroffeelevelsthansolelythoseproviderswiththelargestnumberofparticipantsontheirrecordkeepingsystem.Thismaybearesultof:
Aprovider’spricingstrategyforwinningin–particularmarkets.Operating/businessmodelsbuiltforservinga–particularsegment(e.g.,thehighlycustomizedmegaplanmarket).Possibledifficultyinmovingdownmarketforthe–largestprovidersandupmarketforthesmallerplanserviceproviders.Possibleuniqueserviceofferingsofproviders.–Brandstrengthorqualityofaparticularprovidermay–justifyhigherfees.
Segmentingserviceprovidersintotiersbasedonthenumberofparticipantsontheirrecordkeepingsystemsprovidesaconcisesnapshottocomparevolumewithmedian'all-in'planfeesbytheprovidertier.Thisanalysisdoesnotattempttodescribetherangeofservicesprovidedanddoesnotfactorintherangeorqualityofservicesprovided:
Tier1:greaterthan3,000,000participants•Tier2:between1,000,000and3,000,000participants•Tier3:lessthan1,000,000participants•
The type or size of the retirement service provider does not appear to be an indicator of the 'all-in' fee.
1.62%
0.80%0.66%
0.29%
1.51%
1.12% 1.06%
0.75%
0.26%
1.89%
1.20%
0.76%
0.52% 0.46%
2.03%
1.13%
0.81%
0.62%
0.23%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
Bank Insurance MutualFund TPA
Median 'All-In' Fee (% of Assets) by Retirement Service Provider Type
Exhibit38
$1M- <$10M $10M- <$100M
0.59%
1.36%
1.04%
0.47%0.39%
0.68%
2.03%
0.91%
0.72% 0.66%
0.34%
1.60%
1.87%
1.39%
1.14%
0.97%
0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
AllPlans <$1M $1M- <$10M $10M- <$100M $100M- $500M >$500M
Tier1 Tier2 Tier3
Median 'All-In' Fee (% of Assets) by Retirement Service Provider Tier
Exhibit39
Exhibit38
Exhibit39
28
Broader Plan RelationshipsIngeneral,plansponsorsthathavemultiplerelationshipswiththeirserviceproviderhavelowerpercentageofassetsdefinedcontribution/401(k)fees.Thissuggeststhatitmaybeadvantageousfromapricingperspectiveforaplansponsortoobtainretirementandotherbenefitofferingsfromanentitywithwhichithasanexistingbusinessrelationship.Thiscouldreducestart-upandongoingcosts(e.g.,serviceproviderworkswithpayrolldataforanotherpurpose).
Specifically,basedonthedatacollectedintheSurveyandwhenholdingallothervariablesconstant,havingadefinedbenefitorhealthandwelfareplanrelationshipwiththesameserviceproviderappearstolowerthe'all-in'feeby14basispointsor0.14percentagepoints.
Whileitwasnotconsistentineveryplansizesegment,planswithmultipledefinedcontributionrelationshipswiththesameproviderseemtohavelowerrelativefees.
0.87%
0.68%
0.72%
0.36%
1.89%
1.38%
0.80%
0.60%
0.42%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
DefinedBenefit/Health&WelfareRelationship
NoDefinedBenefit/Health&WelfareRelationship
Median 'All-In' Fee: Additional DB / H&W Provider Relationships
Exhibit40
$1M- <$10M $10M- <$100M
Median All-In Fee: Multiple DC Plans with Retirement Service Provider
Exhibit41
1.27%
0.70%
0.46% 0.14%
1.87%
1.25%
0.79%0.68%
0.44%
0.00%
0.50%
1.00%
1.50%
2.00%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
MultipleDCPlans OneDCPlan
$1M- <$10M $10M- <$100M
Exhibit40
Exhibit41
Defined Contribution / 401(k) Fee Study 29
Proprietary vs. Non-Proprietary Investment OptionsWithintheretirementplanmarket,itiscommonforinvestmentline-upstohaveacombinationofbothproprietaryandnon-proprietaryinvestmentoptions.Asstatedearlier,themajorityofplansintheSurvey(77%)useatleastoneproprietaryinvestmentfromtheirserviceprovider.Theprevalenceofproprietaryornon-proprietaryoptionswithinaplandoesnotappeartobeasignificantdriverof'all-in'fees:
Ahigherallocationofassetstoproprietaryinvestment•optionsdidnotappeartocausehigher'all-in'feesacrossplansizesegments.Theregressionanalysisdidnotidentifyproprietaryor•non-proprietaryinvestmentuseasasignificantdriverofthe'all-in'fee.TheSurveyresultsindicatethatproprietaryand•non-proprietaryinvestmentfeesarenotsignificantlydifferent.
The use of proprietary investment options does not appear to be a driver of the 'all-in' fee.
0.61%
2.03%
0.87%0.78%
0.59%
0.34%
0.76%
1.97%
1.32%
0.91%
0.66%0.51%
0.76%
1.87%
1.20%
0.69%0.62%
0.42%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
AllPlans <$1M $1M- $10M $10M- $100M $100M- $500M >$500M
<25% 25%- 75% 75%+Exhibit42
Median 'All-In' Fee vs. Proprietary Investment Percentage (% of Assets)
25%to<75%
$10M- <$100M$1M- <$10M
0.66%
0.77%
0.62%0.63%
0.82%
0.43%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
AllInvestmentOptions EquityInvestmentOptions Non-EquityInvestmentOptions
Proprietary Non-Proprietary Exhibit43
Median of Average Expense Ratio: Proprietary vs. Non-Proprietary Investments
Investmentexpensesappeartodrivecosts,regardlessofwhetherornottheyareproprietaryornon-proprietary(e.g.large/megaplansgenerallyhaveaccesstolessexpensiveshareclassesofbothproprietaryandnon-proprietaryinvestmentoptions).
Exhibit43
Exhibit42
30
Plan Design Auto-enrollmentisdesignedtoenrollparticipantsintheplanatasetcontributionrate.Anotherautomaticdesignfeatureistheoptiontoescalatetheparticipantcontributionpercentageinthefuture.ThepassageofthePensionProtectionActof2006furtheracceleratedtheadoptionofthesefeaturesinthemarketplace.TheSurveydatasuggestthatthoseplanswithauto-enrollmenthavelowertotalfees(measuredbypercentageofassets)thanthosewithoutthefeature.
Despitetherelativelylargedifferencein'all-in'feesbetweenplanswithandwithoutauto-enrollmentthatisdisplayedacrosssmallerplansizes,theresultsoftheregressionanalysissuggestasmallerimpactof14basispointsor0.14percentagepoints.
Althoughtheauto-enrollmentfeaturecanhaveapositiveimpactonincreasingassetsintheplan,italsotypicallyincreasesthenumberofparticipantswithlowbalancesandthereforeincreasestheadministrativecostofrunningtheplan.Asaresultofthecombinationofthesetwoimpacts,auto-enrollmentmaynotbeinandofitselfdrivingthe'all-in'feelower,butmayratherbereflectingsomeotherfactorssuchastheageoftheplan,thelengthofthetimeoverwhichauto-enrollmenthasbeeninplace,orotherplanfeaturesthatwerenotcapturedintheSurvey.
Additionally,providersmayanticipatethatauto-enrollmentwillleadtomoreadvantages(increasedassetsundermanagement)thandisadvantages(costofsmallbalanceparticipants).Similarlyplanswithautostep-up,whichincreasesthecontributionsovertime,alsotendedtohavelower'all-in'fees.
1.34%
1.00%
0.73%
0.59%
0.38%
1.89%
1.36%
0.99%
0.64%
0.42%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
PlanswithAuto-Enrollment NoAuto-Enrollment
Median 'All-In' Fee by Auto-Enrollment Use
Exhibit44
$1M- <$10M $10M- <$100M
1.14%
0.72%
0.52%0.42%
1.89%
1.32%
0.91%
0.63%
0.39%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2.00%
<$1M $1M- $10M $10M- $100M $100M- $500M >$500M
PlanswithAutoStep-Up NoAutoStep-Up
Median 'All-In' Fee by Auto Step-Up Use
Exhibit45
$1M- <$10M $10M- <$100M
Exhibit44
Exhibit45
The use of auto-enrollment is a characteristic of plans with lower 'all-in' fees.
Defined Contribution / 401(k) Fee Study 31
VII. Summary
Range of Fee ArrangementsDefinedContribution/401(k)feesarechargedinavarietyofwaysfortheservicesprovided.Typicalfeestructuresincludeasset-basedinvestmentfees,per-participantrecordkeepingfees,per-planrecordkeepingandadministrationfees,andper-planadvisoryfees.Asplansponsorsworkwithretirementserviceproviderstosetuporadministertheirplans,arangeofscenariosorarrangementsisgenerallyconsidered.Thisreportdoesnotaimtoassessthoseranges,buttocalculateanex-postcomprehensiveplanfee.Tocomparefeesacrossplans,thisbottom-lineor'all-in'feewascalculatedcombiningalladministration,recordkeeping,andasset-basedinvestmentfees.Attheendoftheday,whetheraplansponsorisaddingupcomponentfeesorlookingatamorecomprehensivepackage,the'all-in'feeallowsforamoredirectcomparisonacrossplans.
The 'All-In' FeeThe'all-in'feewhichincludesrecordkeeping,administration,andinvestmentmanagement,wasevaluatedintwoways:(1)percentageoftotalplanassets,and(2)annualdollarperparticipantamount.AcrossallplansintheSurvey:
The'all-in'feevariedfrom0.35%ofassets(10th•percentile)to1.72%ofassets(90thpercentile).Themedianplan's'all-in'feewas0.72%ofplanassets.•Themedianplan'sannualdollarperparticipantfee•was$346.
Plan Size Appears to be Primary Driver of 'All-In' FeeThe'all-in'feevariedduetoanumberofplan-relatedvariables.Statisticalregressionanalysisfoundthatplansizeappearedtobethemostsignificantdriveroffees.Morespecifically,furtheranalysisshowedthatamoremeaningfulwaytoviewplanassetsizewasthroughtwoindependentfactors:
Numberofparticipants;and•Averageaccountbalance.•
Bothnumberofparticipantsandtheaverageaccountbalancewerenegativelycorrelatedwiththe'all-in'fee.Withinanydefinedcontribution/401(k)plan,therearefixedcostsrequiredtostartupandruntheplan,manyofwhicharedrivenbylegalandregulatoryrequirements(e.g.,compliancetesting,audit,Form5500).TheSurveyresultsappeartoindicateeconomiesaregainedasaplangrowsinsize,becausethesefixedcostscanbespreadovermoreparticipantsand/oralargerassetbase.
Other Factors Are Secondary Drivers of Fees Inadditiontoplansize,anumberofotherfactorsappearedtohelpexplainthevariabilityinplanfees.Linearregressionanalysisfoundthatlower'all-in'feesappeartoberelatedto:
Higherparticipantandemployercontributionrates;•Lowerallocationofassetsinequities-oriented•assetclasses;Useofautomaticenrollment;•Fewerplansponsorbusinesslocations,whichreduces•servicingcomplexity;andOtherplansponsorbusinessrelationshipswiththe•serviceprovider.
Ontheotherhand,numberofpayrolls,whichmighthaveincreasedcomplexity,wasnotfoundtobeadriveroffees.Thetypeofretirementserviceprovider(mutualfundcompany,lifeinsurancecompany,bank,thirdpartyadministrator)andtenurewiththeretirementserviceprovideralsodidnotappeartobesignificantfactors.Inaddition,thepercentageofassetsinvestedintheinvestmentproductsoftheserviceprovider(proprietaryinvestments)didnotseemtohaveaseparateimpactonfees.
32
Appendix: Glossary of Terms
Terms Definition
ActivePlanParticipants Individualcurrentlyparticipatinginanemployer-sponsoredretirementplan.
Auto-Enrollment Thepracticeofenrollingeligibleemployeesinaplanandinitiatingparticipantdeferralswithoutrequiringtheemployeestosubmitarequesttoparticipate.
AutoIncrease/Step-Up Aprovisionfoundinsome401(k)plansthatallowsaneligibleemployeetoincreasetheircontributionrateatapre-establishedpoint-in-time.
Communication/EducationServices
Participantcommunicationandeducationservicesrelatingtoprovidingprint,video,softwareand/orliveinstructiontoeducateemployeesabouthowtheplanworks,theplaninvestmentfunds,andassetallocationstrategies.
CompanyStockServices Servicesneededfortherecordkeepingandadministrationofcompanystock.
ComplianceTesting PlansengagedintestingrequiredbytheIRStoensurethe401(k)planisfairtobothhighlycompensatedandnon-highlycompensatedemployees.
CustomServices Additionalorenhancednon-standardservices(e.g.,website,callcenter,branding,etc.)selectedbytheplansponsor.
EducationMaterials Thesematerialsareprovidedtoplanparticipantstohelpeducatearoundtheneedforretirement,investmentoptions,howtoproperlyplanforretirement,howtocalculateretirementsavings,etc.
EligiblePlanParticipants Anyemployeewhoiseligibletoparticipateinandreceivebenefitsfromaplan.
EmployeeMeetings Thesemeetingswithemployeesexplainthebenefitsofparticipatingintheplan,answerquestionsaboutsavingandtheplan,andprovideanunderstandingoftheplanspecifications.
EmployerContribution Acontributionmadebythecompanytotheaccountoftheparticipant(oftentimesintheformofacompanymatchbasedinratiotocontributionsmadebytheparticipant).
Expenseratio Aninvestmentoption’stotalannualoperatingexpenses,includingforinvestmentmanagementandadministrationoftheinvestment,expressedasapercentageofassets.Formutualfunds,thisiscalculatedpursuanttoSECrulesforfundprospectuses;otherinvestmentoptionsmayprovideplansasimilarnumberexpressingtheinvestmentoption’sfees.
FinancialAdvice/Guidance Adviceorguidanceprovidedtoparticipantsintheplanbyathirdparty.
Form5500Reporting ThisannualplanfinancialreportingformisrequiredbyIRS/DOL/PBGC.
GuaranteedInvestmentContract(GICs)
Theseaccountswithaninsurancecompanyguaranteeafixedrateofinterestoverthelengthofthecontract.
InvestmentRelatedCharges Asset-basedfeesforinvestmentmanagementandotherrelatedservicesgenerallyareassessedasapercentageofassetsinvested;paidintheformofanindirectchargeagainsttheparticipant’saccountortheplanbecausetheyarededucteddirectlyfrominvestmentreturns.
LegalServices Legalsupportservicesprovidedtotheplan.
ManagedAccounts Anaccountforwhichtheholdergivesathirdpartytheauthoritytomanagetheinvestingofassets.
NondiscriminationTesting Regulationsmayrequirethisannualtestingtoassurethattheamountofcontributionsmadebyandonbehalfofnon-highlycompensatedemployeesisproportionaltocontributionsmadebyandonbehalfofhighlycompensatedemployees.
ParticipantContributionRate
Theamount(typicallyexpressedasapercentageofthecontributionbase)thatanemployeecontributestotheplan.
PlanAssets Thetotalassetsheldamongallparticipantswithintheplan.
PlanAudit Anindependentauditrequiredbyfederallawforallplanswithmorethan100participants.
PlanDocumentServices Development,maintenanceandconsultingrelatedtotheplandocumentsofaplan.
PlanSponsorInvestmentAdvisor
Thirdpartyconsultanthiredbytheplansponsortoassistwithplandesign,investmentdesign,searchandselectionprocessandotherplanadvisoryservices.
QualifiedDomesticRelationsOrder(QDRO)
Ajudgment,decreeororderthatcreatesorrecognizesanalternatepayee's(suchasformerspouse,child,etc.)righttoreceivealloraportionofaparticipant'sretirementplanbenefits.
TrusteeServices Servicestypicallyprovidedbythebankortrustcompanyhavingfiduciaryresponsibilityforholdingplanassets.
ThispublicationcontainsgeneralinformationonlyandisbasedontheexperiencesandresearchofDeloittepractitioners.Deloitteisnot,bymeansofthispublication,renderingbusiness,financial,investment,orotherprofessionaladviceorservices.Thispublicationisnotasubstituteforsuchprofessionaladviceorservices,norshoulditbeusedasabasisforanydecisionoractionthatmayaffectyourbusiness.Beforemakinganydecisionortakinganyactionthatmayaffectyourbusiness,youshouldconsultaqualifiedprofessionaladvisor.Deloitte,itsaffiliates,andrelatedentitiesshallnotberesponsibleforanylosssustainedbyanypersonwhoreliesonthispublication.
©2009DeloitteDevelopmentLLC.MemberofDeloitteToucheTohmatsu
About DeloitteDeloittereferstooneormoreofDeloitteToucheTohmatsu,aSwissVerein,anditsnetworkofmemberfirms,eachofwhichisalegallyseparateandindependententity.Pleaseseewww.deloitte.com/aboutforadetaileddescriptionofthelegalstructureofDeloitteToucheTohmatsuanditsmemberfirms.Pleaseseewww.deloitte.com/us/aboutforadetaileddescriptionofthelegalstructureofDeloitteLLPanditssubsidiaries.
For more information, please contact:Daniel RosshirtPrincipalDeloitteConsultingLLPTel.212-618-4586Email:[email protected]
Scott ParkerSeniorManagerDeloitteConsultingLLPTel.612-397-4654Email:[email protected]
About the Investment Company InstituteTheInvestmentCompanyInstitute(ICI)isthenationalassociationofU.S.investmentcompanies,includingmutualfunds,closed-endfunds,exchange-tradedfunds(ETFs),andunitinvestmenttrusts(UITs).ICIseekstoencourageadherencetohighethicalstandards,promotepublicunderstanding,andotherwiseadvancetheinterestsoffunds,theirshareholders,directors,andadvisers.MembersofICImanagetotalassetsof$10.18trillionandserveover93millionshareholders.ForadditionalinformationaboutICIanditsresearch,pleaseseewww.ici.org.
