Benchmarking Multiemployer Annuity Fund Administrative Fees

The results of our analysis of DC annuity funds’ administrative expenses

Our analysis segmented the data by plan type, geography, plan size and participant size. We found clear patterns in administrative expense. This information provides guidelines trustees can use during negotiations with recordkeepers and third-party administrators.

The following graphs illustrate our findings. They include data from all regions, all plan sizes as measured by number of participants and all plan sizes as measured by assets and all plan types.

In the Northeast, Average Per-Participant Administrative Expenses Are More than Twice as High as Those Paid in Other Regions

To divide plans into regions, we followed the U.S. Census Bureau’s regions.

Source: Segal’s analysis of multiemployer DC annuity funds’ 2023 and 2024 Forms 5500

These regional differences are a function of local fee markets, average plan size, vendor pricing model of services and operational complexity.

Trustees can use these findings to approximate the reasonableness of the fees in their plan, and structure negotiations to align with their plan’s features

When assessing fees, plan sponsors should also look for transparency in fee arrangements. Fees should be separated by recordkeeping, trust/custody, audit/legal, advisory/consulting and cybersecurity/compliance.

Small- to mid-sized funds can migrate to participant-directed bundled platforms, emphasize relief from annual minimums and adopt standardized platforms. Larger funds should push for volume breakpoints and unit-rate reductions to reflect scale advantages.

For trustee-directed or money purchase designs, consolidation of managers and custodians is a key consideration. To mitigate local cost premiums, also consider cross-region vendor selection.

Regardless of region or size, all plans should periodically assess the market to offset inflation and keep up with the latest trends. Plan sponsors can accomplish this with small market checks through a request for information (RFI) or a full-scale request for proposals (RFP), which may uncover hidden services or gaps as well as enhance fiduciary protection. Without regular benchmarking, plans are exposed to stale rates and complex fee structures.

7 steps trustees of plans with outdated fee structures can take to lower administrative costs

To lower administrative costs, plans can take the following steps:

1. Identify participant and asset tiers, and leverage economy of scale. Structure the plan so that recordkeeping costs are spread over a larger base of participants, assets or services.
2. Adopt participant-directed platforms where appropriate. For smaller funds, bundled, standardized platforms can flatten cost curves.
3. Streamline investment oversight. Reduce the number of managers, simplify share classes and consolidate custody to narrow the spread compared to participant-directed peers.
4. Run competitive bids across regions. Include out-of-region providers to counteract high-cost local markets, especially in the Northeast.
5. Benchmark each fee component. Verify presence and trajectory of breakpoints.
6. Rework fee schedules. Replace rigid annual minimums with scalable breakpoints tied to growth in the number of participants and/or assets.
7. Automate operations. Standardize eligibility and contribution data flows to reduce the need for manual processing by the recordkeepers and associated professional fees.

Continuous monitoring of administrative fee structures is important

After establishing fee structures, trustees should review them annually for potential changes. The steps to rebid or renegotiate, simplify fund lineup and automate key operational areas are revolving processes that are never permanent. Fiduciaries have a responsibility to continually monitor fee levels and regularly take action to ensure their plans’ fees are in line with the industry. These responsibilities are grounded in ERISA, which emphasizes that process and prudence — not results alone — are most important when evaluating whether fiduciaries have met their obligations. Part of these responsibilities includes ensuring that administrative fees (both from third-party recordkeepers and internal trustee administration) are kept as low and manageable as possible.

In an ever-evolving landscape of annuity fund administration, oversight remains critical to fulfill fiduciary obligations.

Negotiating lower administrative fees will become more difficult

Going forward, multiemployer annuity plans will need to carefully evaluate the barriers they face to achieve lower administrative expenses, particularly for smaller and mid-size funds that face vendor minimums and fixed-cost pressures, or the increased cost of self-administration. This, coupled with the shrinking of the DC recordkeeping industry, will make it even more challenging for plans to negotiate for lower fee levels.

Participant-directed platforms and bundled service models may continue to compress per-participant costs. Regional dispersion will likely persist given structural cost differences, unless offset by cross-region sourcing or market shifts. Governance complexity premiums in trustee-directed and money purchase structures will remain. Trustees can address them explicitly via lineup simplification and manager consolidation.

To reduce multiemployer annuity fund fees, knowledge is power and vigilance is essential

Trustees who understand how administrative fees vary — by region, participant size, asset size and plan design — are well positioned to evaluate reasonableness, fulfill their fiduciary obligations and negotiate effectively in an increasingly constrained market.

To ensure fees remain as low as possible, ongoing oversight is important.