The cost of sponsoring a 401(k) plan dropped again in 2015, as more sponsors are paying a fixed-dollar cost for recordkeeping services, according to NEPC's most recent breakdown of defined contribution plan costs.
The median plan fee, or the total cost to provide and administer a plan, was 46 basis points in 2015, meaning plans cost an average of 46 cents for every $100 in a plan, according to the Boston-based consultant to plan sponsors.
That was down from 52 basis points in 2014. In 2006 the average all-in cost was 57 basis points.
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The median recordkeeping fee was $64 per participant, down from $70 last year, and a precipitous decline from the average of $118 per participant in 2006.
NEPC's report suggests there may be no more room for recordkeeping costs to drop.
"This erosion in fees leaves little wriggle room for more cost savings; plan record keepers cannot continue to provide the highest levels of service if profit margins are non-existent," according the report.
Of the 113 plans surveyed, 47 percent of sponsors have negotiated a fixed-dollar per head recordkeeping arrangement.
Just over half of those were mega plans, with more than $1 billion in assets. But the study also found that an increasing number of midsized plans—43 percent—with assets between $110 million and $500 million are using fixed-dollar recordkeeping arrangements.
Of all the sponsors surveyed, 58 percent are using plan expense reimbursement accounts, or PERAs, which allow sponsors to earn money from a 401(k) plan above the cost of recordkeeping fees.
Other plan expenses, such as the cost of participant communications, can be paid for with assets from PERAs.
In fixed-dollar recordkeeping arrangements with capped costs, PERA accounts can increase with plan performance, more so than with bundled recordkeeping arrangements, where recordkeeping costs rise with plan assets.
The study suggests that record keepers are offering low fixed-dollar costs along with PERA accounts in order to compete for sponsors' demand for more affordable services.
The study also notes that the drop in average recordkeeping costs was even more notable in light of the fact that half of plans' costs are asset based, and that the Standard and Poor's 500 index rose 13.7 percent last year, returns that drove up recordkeeping costs for plans with asset-based fee arrangements.
Smaller plans were much more likely to have revenue-sharing agreements with investment managers.
Of the 50 percent of plans that do have revenue-sharing agreements, the average return was 9 basis points, or 0.09 percent of assets, which was in line with the return on revenue-sharing agreements last year.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
