401k Administrative costs?

[MD-Benefits Guy]

I am curious to know what others are paying in 401k plan administration fees to their plan administrators? We have about 12 million in plan assets and are being charged .57% that is broken into two parts:

.37% by the administrator for their own revenue

.20% Expense that is passed to a third party financial consultant

Trying to figure out if our fees are resonable or not?

Thanks in advance

[rcline46]

Reasonableness of fees must be reviewed in total. Do the assets pay 12b-1, sub TA or other fees which flow through to the administrator or consultant - these are not required to be disclosed now but will be.

How large is the plan participant wise? What does the financial consultant do? how often?

[GMK]

If I'm reading this right:

The 0.20% for a TPA is in the ball park, some cost a little more, some a little less.

The 0.37% for an advisor seems high when you've got as much as $12 million in assets. But it might be OK, depending on what the advisor provides, for example, if the advisor is a co-fiduciary.

Another factor is whether you have access to low expense ratio classes of mutual funds, like investor and institutional shares as opposed to no-load A shares and R shares, and what happens to revenue sharing. In other words, are participants paying a higher expense ratio to pay some of the plan costs in addtion to the 0.57%? (Like what rcline46 said.)

Issuing an RFP will get you answers, and it's considered good due dilegence every 3-5 years. Some proposals will answer all your questions. For others, be prepared to go back and ask about the specifics of what the fees are, how they are paid, what services are (and are not) provided, etc. Is personal data shared? Do they mail statements to participants or is everything online? Is there a phone center for participants who aren't online? What information back-up and hacker protections are provided? And the usual questions about participant education (and advice if any), non-discrim testing, 5500, 1099, cost of restatements, limitations on funds available to the plan and their share classes, and co-fiduciary status. It's a big project, but enlightening.

[Bill Presson]

GMK, I read that opposite of what you do.

rcline46 raises the main point: how many participants?

If there are 10 participants, you're probably being overcharged. If there are 1000, you're probably getting a good deal.

For our TPA services, we bill on a base + per participant fee. The assets in the plan really don't make a difference in the amount of work we do, so we don't charge an asset based fee. And we pass through 100% of the revenue sharing in excess of what's used to pay the custodial fee.

The question on what the financial consultant does is also critical.

Bottom line is that I don't think there is enough information provided by the op to determine if the numbers are in line.

[GMK]

Bottom line is that I don't think there is enough information provided by the op to determine if the numbers are in line.

I fully agree.

I assumed perhaps too many things, like that 'third party financial consultant' means TPA, and that this plan is set up with only asset-based fees and no per participant fees. But I see now that the 0.2% fee may be the calculated percentage of $24k of fixed fees. And as you say, whether that's a bargain depends on several factors, not the least of which is number of participants.

I think the other point rcline46 made, about revenue sharing to pay the advisor, etc., is equally important. I agree with your pricing model for TPA's, but some plans pay for everything with an asset-based fee.

Again assuming that 'administrator' in the OP means the financial advisor, then I think they could do better at the $12 million asset level (but I could be wrong). And it's probably a good rate if the advisor provides investment advice (as a fiduciary) to individual participants as part of the service to the plan.

If it were my plan, I'd put out an RFP.

[MD-Benefits Guy]

Sorry, some more info:

Currently there are 317 participants with a balance. 249 are active employees. The 401k administrator does our year end testing and also files the 5500 for us.

The financial consultants help us review and monitor our funds in the 401k. We have a meeting with them once a quarter to review fund performaces & make sure that investment objectives are still consistent with the funds stated investment strategy - they use a report from FI360 that we go over.

Thanks for the replies.

[GMK]

OK, I got them backwards. The 0.2% is in the range, give or take, depending on what they do.

I'll let Bill respond to $44k for the TPA. They must do a lot more than testing and 5500.

[Bill Presson]

OK, I got them backwards. The 0.2% is in the range, give or take, depending on what they do.

I'll let Bill respond to $44k for the TPA. They must do a lot more than testing and 5500.

Based on the info provided, $44k seems quite high to me. There may still be extenuating circumstances (like whether they charge separately for distributions/loans, how many payrolls they process, does that cost include the custodial fees, etc.), so don't take this as a final indictment of their fee.

Still don't have an answer on additional revenue sharing available and what happens to it.

Frankly, it would be much closer to what I've seen if the numbers WERE reversed.

[ESOP Guy]

IF the $44k is for TPA work that seems high, but one could only know for sure by seeing the service agreement.

If the TPA is running a call center for example that could change the answer rather quickly.

On the other hand if it really is testing, 5500, working with the auditors etc ... you could do much better with a fixed fee agreement.

I would send out RFPs to a number of different service providers and see what comes back in terms of cost.

[Archimage]

I would also agree. $44k sounds ridiculously high for standard services.

[Guest C&B for Beer]

With your 317 participants, $44K is $140 per participant. Assuming your TPA is a bundled recordkeeper/trustee arrangement and they offer the typical menu of services (web and phone access, auto escalation, auto rebalancing, daily valuation and fund transfers, maximum of 1 loan, hardship withdrawals, rollovers, 2 or 3 sources of money, 10 investment options), you could find a high-quality TPA in the $100 per participant range.

[austin3515]

I'm assuming what is being referred to as a TPA is more likely than not a recordkeeper that also does the TPA work. And 20bps for recordkeeping I don't think is out of line with what I've seen. Does the 20bps include the recordkeeping services, MD Benefits? (i.e., maintaining web-site, sending out quarterly statements, etc)

[GMK]

We all generally agree with you, Austin.

But the "TPA" part is the 37 bps, not the 20.

[austin3515]

I still don;'t think 37bps is a "rip-off" for RECORDKEEPING. Probably could do better, but its not aggregious. I've seen providers charge .8% for RK/TPA work. Somoene alluded to average account balances indirectly, which is a huge consideration with pricing. Based on the info provided, the average balance is about $38,000, which is pretty good actually. You could probably get better pricing for recordkeeping/TPA work.