Retirement Plan Fee Benchmarking for Private Colleges

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Plan sponsors are expected to understand fees associated with an organization’s retirement plan, as well as to ensure costs are reasonable in relation to the nature of the services offered. In today’s complex world of fee arrangements, this is no easy task. While a plan does not have to include the cheapest fees available, they must offer fees at what is considered a “reasonable rate.” A best practice most plan sponsors execute is to benchmark their costs by obtaining requests for proposals every three to five years (or more frequently if a plan size changes significantly).

Why Plan Sponsors Should Benchmark Their Fees

It is important to review fees on a regular basis to make sure they are fair and reasonable based on a plan’s current metrics and current market conditions. Please note that many recordkeepers charge fees on a percent-of-assets basis. As plan assets increase through plan contributions and market appreciation, plan fees also increase. Typically, plans with larger plan asset balances have lower required revenue from their recordkeepers on a percent-of-assets basis. For plans that are similar in overall asset size, those with higher average account balances (and less individual accounts to service) typically have lower required revenue levels. 

Other considerations include plan efficiencies, such as plan sponsor data transmission, limits on participant loans, and sponsor and participant service requirements. In conducting an analysis of plan fees, it is important to fully assess the services that are delivered by the plan administrator or recordkeeper.

Updating Processes

Piggy bank with sign 403b on a side.The need for fee benchmarking is well publicized in the private sector, as a result of several known lawsuits. In the 403(b) plan arena, the demand for this process is just emerging. Until 2009, 403(b) plan sponsors had limited Form 5500 reporting obligations and written plan document requirements. 403(b) plan sponsors have updated their processes to mirror those of the private sector over the last decade.

The Impact of Fee Benchmarking in Private Colleges

Nearly two dozen lawsuits against universities alleging excessive retirement plan fees were filed since 2016. Some were settled and some were successful, while others are still in process. In the event of a Department of Labor audit or a participant lawsuit, a plan sponsor must demonstrate that plan fees are reasonable.

We recommend plan sponsors be proactive in demonstrating their review of plan fees. Private colleges are encouraged to engage consultants to review their plan fees in order to potentially negotiate fee reductions. In several cases, plan sponsors have remained on the same platform with the same services and received fee reductions. The fee reductions can be used to pay the plan consultant, audit fees, other plan administration expenses or can be refunded to plan participants.

The following is a summary of differing plan sizes and their related savings.

Examples of Successful Fee Negotiations

Plan A ($89 million total plan assets, 719 total participants) - $35,000 in annual fee savings

Plan B ($86 million total plan assets, 806 total participants) - $25,750 in annual fee savings

Plan C ($61 million total plan assets, 605 total participants) - $21,300 in annual fee savings

For More Information

Conducting routine fee benchmarking can produce significant savings to an organization and the plan sponsor, ensuring a plan sponsor is satisfying their fiduciary obligations. Please contact our higher education team to discuss your specific needs.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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