Lower fees for defined contribution retirement plans are related to factors such as the size of the plan, higher contribution rates by employers and employees, and greater use of automatic enrollment.
Those were the findings of a study released today by the Investment Company Institute and Deloitte Consulting LLP, a subsidiary of Deloitte LLP of New York.
The study examined 130 plans that had assets ranging from less than $1 million to more than $500 million, and from less than 100 participants to more than 10,000. It was conducted in November and December.
Among factors that can affect fees include the plan sponsor’s relationship with the plan service provider, and allocation of assets to equities, according to ICI.
Equity funds tend to be more costly to manage,” according to the study, “
Defined Contribution/401(k) Fee Study”
The median fee level found in the survey was 0.72% of assets, with the range of fees starting at 0.35% and reaching a high of 1.72%.
Primary factors influencing fees are the number of participants in a plan and the average account balance, with larger plans having significant economies of scale, ICI said in a release.
“Policymakers, employers, plan service providers and workers all need a better understanding of what plans cost and what factors are the key drivers of plan fees,” Washington-based ICI president and chief executive Paul Schott Stevens said in the statement.
ICI cited Department of Labor statistics showing that 62% of 401(k) plans have less than $1 million in assets, but only 4% of all 401(k) assets and 10% of participants are in such small plans.
Half of 401(k) plan assets are in plans with more than $500 million in assets, the ICI said.
Congress has been examining 401(k) issues, most notably plan fees, which can significantly erode plan participants’ earnings over long periods of time and result in substantially smaller retirement savings and income. Legislation is being considered that would require stricter disclosure rules for 401(k) fees.
