Relationships between defined contribution (DC) plan sponsors and record-keepers are showing signs of strain, according to Callan Associates Inc.'s 2008 DC Fee Survey. While 82% of the sponsors surveyed indicated fees were presently in line with expectations, more than a third (34.8%) said they were very likely to renegotiate record-keeper fees this year and next. One in five (21.5%) anticipate switching to lower-fee asset classes. Only 13% said they were very likely to conduct a record-keeper search.
While the findings suggest that most plan sponsors are satisfied with their record-keepers, many of the respondents indicated fees are too high, according to Lori Lucas, Callan DC practice leader. Fee negotiations between plan sponsors and record-keepers may be further damaged by market volatility, as record-keepers who depend on asset-based fees for profits begin to feel the stress of the market decline on their bottom line, Lucas says.
Still, plan sponsors aren't racing out to find new record-keepers. Only about 14% of the 75 plan sponsors surveyed by Callan said it is very likely they will search for a record-keeper in coming months. "This suggests that while fees may be an issue, service level is generally not," says Lucas. Other findings include:
- 11% said they are very likely to unbundle their plans by using collective trusts and/or separate accounts, indicating that this trend continues at a modest pace.
- Only one in 10 sponsors will very likely reduce or eliminate the use of revenue sharing to pay plan expenses.
- And only about 6% are very likely to go to the extreme of moving some or all funds from actively managed to index funds. "Plan sponsors are clearly focused on monitoring and evaluating DC plan fees, with many indicating a readiness to challenge the level of fees paid to their record-keeper and to negotiate a better fee structure," says Lucas. "However, they generally are not prepared to move aggressively away from the revenue sharing model of fee payment."