Rich and Co.

Experienced TPA’s POV on Fee Discussion – Tony Michael of FutureBenefits of America

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Here is a straightforward perspective on the fee discussion by Tony Michael of Memphis a top retirement TPA FutureBenefits of America ( and expert plan consultant.  We print as written with no edits:

To Share or Not To Share

In the world of traditional 401k plans, revenue sharing has become as common as filing a Form 5500 annually.  While the commonality of these events to those of us who operate as service providers in the industry is second nature, to the participants and sponsors it may be a new revelation.

The discussion of legislation forthcoming from ERISA on section 408(b)(2) has formed a mushroom cloud of concern over fees and how participants and sponsors will react once they actually see them in full view. 

We have always approached the subject of full fee disclosure head on.  Keeping a simplistic approach has always been the easier road.  I always thought, why make things difficult if you don’t have to?

With full fee disclosure, the requirement to show revenue sharing received from the funds will be new to most.  Even those offering full disclosure do not make it part of a participant statement.  As we travel down the road of scrutiny of fees, this could all be eliminated by simplifying the process of fund selection.

One way is to add Exchange Traded Funds(ETF) to the menu.  ETF’s solve many of the problems that exist.  By utilizing the ETF strategy, there are no revenue sharing issues to deal with.  In addition to the low expense ratios and complete diversification allowed by ETF’s, the only fees that apply are for the services rendered of the plan.

However, if overall the expense is lower from the revenue sharing of the funds, most of the time it is not applied back to the participants.  Most software systems do not have the ability to apply it directly to the participant that invested in that particular fund.  The normal scenario is that revenue sharing comes back to the provider and the sponsor’s hard dollar cost is reduced.  This inevitably causes lower returns for the participant and lowers the earning dollars as it relates to retirement.

Eliminating revenue sharing also is easier on the operation.  Not having to deal with credits and applying them would be less work.  At least it would be for me as a TPA.


Written by Rich and Co.

May 22, 2011 at 7:07 pm

Posted in Uncategorized

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