Reports and Surveys | May 30, 2019

Cost Effectiveness and Fee Transparency in DC plans

In this Public Sector Letter on defined contribution plan cost-effectiveness we’ll cover:

  • Risks related to cost-effectiveness and fee transparency
  • Breaking down DC plan costs
  • Mechanisms for payment of DC plan costs
  • Integrated measurement and management frameworks
  • Benchmarking and measurement considerations
  • Balancing of cost and scope of services and
  • Advantages of implementing a measurement and management framework

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An integrated measurement and management framework

State and local government sponsors of defined contribution (DC) plans increasingly identify cost-effectiveness and transparency of fees as overriding priorities in offering a high-quality benefit to participants.

That is for good reason. A cost-effective and transparent expense structure positions a plan to achieve its long-term goals of maximizing participation, encouraging higher contribution rates, enabling compound growth of participant account balances and motivating participants to remain in the plan when they retire.

Conversely, failure to offer a cost-effective plan with easily understood fees can not only undermine those goals, it can harm the plan’s reputation with stakeholders and may expose the plan to a greater risk of costly litigation.

The good news is that plan sponsors can successfully manage plan costs and continuously improve transparency by using an integrated, repeatable measurement and management framework. In this Public Sector Letter, we present an overview of the framework, which includes a documented governance approach, regularly scheduled assessments, and a manageable set of key measures and reports that enable tracking of fees and expenses against budgets, goals, policies and benchmarks.

Breaking down DC Plan costs

DC plan costs are best understood and managed when they are broken into categories. Disaggregating costs also enables more effective oversight. While there are a number of valid ways to categorize DC plan costs, they may be divided into the following three categories:         

  • Recordkeeping fees
  • Investment expenses
  • Plan administrative costs

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Segal professionals assist state and local governments that sponsor DC plans, providing plan design and plan assessment studies, participant communications, compliance services, and more. 

As a SEC-registered member of The Segal Group, Segal Marco Advisors provides investment solutions for DC plan sponsors including fiduciary oversight and training, creation and ongoing review of investment policy statements, ongoing monitoring and performance analysis, and investment menu design and evaluation.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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