DB versus DC statistics

[Guest Ken Newhouse]

The theme of an upcoming speech I am giving is Dispelling Myths About DB Plans. One of the myths is that they cost more to administer than 401(k) plans but I don't have any hard facts. Can someone refer me to any good surveys. I want to try to get a handle on both fees paid to outside vendors and internal costs. I am also looking for average deferral and matching rates in 401(k) plans and average investment allocations.

[richard]

What I can suggest in your comparison is to compare apples to apples.

Some firms charge less (or will only accept the business) if they hold the assets (or have an affiliation with the firm that holds the assets). This is particularly true with 401(k) plans. This is because they receive additional compensation related to the investments.

This also holds true for certain firms associated with insurance companies.

I suggest, for comparison purpose, that either

(1) the additional income be added to (or indicated separately from) the consulting/administrative fees, or

(2) you limit the comparison to firms that do not accept such additional fees.

[Lorraine Dorsa]

You also need to consider the service levels provided and the wide variation in fees from firm to firm, even for the same services.

Our firm does a lot of DB work all over the country and prospective clients sometimes tell me that they are paying twice the fee I have quoted, and other times half, with no obvious differences in the services to be provided. In the DB area, some firms do all the work in house and others outsource the work so this may also cause a variation in fees and service levels.

People I know from software user groups and other professional organizations who work in firms which handle only DC plans tell me that there is a lot of competition in the DC (particularly 401k) area and a lot of downward pressure on fees, often due to the offset of fees by asset charges which makes apples to apples comparison difficult.

What you need is some survey of fees, but I don't know of any. Most professional organizations make a point of refusing to discuss fees at their meetings to avoid any possible hint of collusion.

Good luck with your research.

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[Guest Brian4]

For comparison of DB vs. DC administrative expenses, the Hay Company did a study for the PBGC. For example, see the Pension Research Council's book "Living with Defined Contribution Plans", Chapter 8. For small plans (15 employees) the costs were similar in 1981, but recently DB plans costs about twice as much as DC plans. For a large plan (10,000 employees) the recent difference (extra cost of DB plans) is estimated at $19 per employee per year.

At the top of the BenefitsLink header is a link for the EBRI. they have done research on investment allocations.