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401k Plan Fees: Flat-Dollar Amount or Asset Based?

401k Plan Fees: Flat-Dollar Amount or Asset Based? Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU), recently interviewed Adjunct Lecturer James Hageney of Centurion Group to discuss the changing 401k Plan fee modeling options with which plan sponsors and retirement plan advisors work.  Mr. Hageney’s firm manages over $16 Billion of retirement plan assets for a variety of plan sizes and structures.

Retirement committees spend a substantial amount of time making certain that the fees being charged within their plans are reasonable. The topic of investment-based fees has been brought to the forefront due by the Department of Labor (DOL).

Mr. Hageney discusses with Mr. Barstein the various models being used throughout the industry today – Flat-Dollar Amount, Asset Based or a Hybrid of the two.

Full Transcript Below

Fred Barstein:               This is Fred Barstein with this week’s edition of Fred Talks. Today, we’re fortunate to have one of the industry leaders. He is Jim Hageney, co-founder and a principle at Centurion Group. Welcome, Jim.

Jim Hageney:                Thank you very much.

Fred Barstein:               Centurion is one of the leading defined contribution consulting firms with $16 billion of assets under management. But more importantly, they really are one of the innovators bringing together retirement, health care, all different facets, and work with large companies, small companies on it. We’re very, very fortunate to have him today.

Fred Barstein:               Today, I wanted Jim to talk about we are going through a revolution of the fee structure. Initially, it was just how much are they? Are they reasonable and all of that? But we’ve gone a little bit deeper. Jim, could you talk about some of the changes you’re seeing with participants and plan sponsors that are reviewing fees and the benefits?

Jim Hageney:                Sure, Fred. Thank you. What we have been looking for recently is to really do a deep analysis in terms of how much each participant is paying, not only just in revenue sharing, but also their investment fees in this area of fee compression. We have really concentrated on trying to evaluate and determine how much each participant is paying for their investment cost, but also for their recordkeeping cost, to make sure for a plan sponsor that those fees are in fact reasonable and can be defined. We are able to do that through some analytical software we’ve developed, specifically getting down to each and every participant.

Fred Barstein:               Why does fee equalization, especially just on the revenue sharing side, make sense?

Jim Hageney:                In our mind, we feel that there are different ways to pay for recordkeeping services. Those can be either a flat dollar per participant, they can be an asset-based fee, or they can be a hybrid of both. Historically, we’ve always been in some sort of revenue sharing and that’s why those fees tend to be unequal. Depending upon where you invest your money, they may have different revenue-sharing amounts.

Jim Hageney:                What we’re trying to do is educate the plan sponsor committee on the fact that you can equalize those fees. By doing so, you may be able to find efficiencies, reduce costs, but also a more reasonable way for participants to share in the overall cost of recordkeeping.

Fred Barstein:               A more fair way. Then can you explain a little bit more about what’s this hybrid approach?

Jim Hageney:                Sure. In our practice, we will evaluate recordkeeping fees in both either our flat dollar per participant or an asset-based fee. When you have a large dichotomy of plan participants, some with very high-average account balances, and some with very low-average account balances, it becomes unfair for a small-balanced participant to pay a flat fee.

Fred Barstein:               Because it’s a big percentage overall, right?

Jim Hageney:                Exactly. On the other hand, you have some participants with very high-average account balances that may be paying extraordinary amounts of recordkeeping fees. Therefore, the hybrid approach is actually a combination of both. Maybe a small flat dollar per participant, and then a lower asset-based fee, so that through this software that we’ve developed, it really creates some clarity for the plan sponsor committee to see the effects of all three different methodologies.

Fred Barstein:               It’s maximizing, so you might say up to a $50,000 compound that you’re paying a percentage, and then over that, you might pay a flat fee.

Jim Hageney:                Exactly. Or it could be the opposite. You could have a flat fee and then everyone pays the same asset base amount, but we can model those. A combination, so we can model those, and provide that information for the committee.

Fred Barstein:               Very good. Well, to plan sponsors, you really need to be looking at not fees, not for just reasonable, but how do you maximize the benefit for the participants? Thanks for your time today, Jim.

Jim Hageney:                Thank you, Fred.

Fred Barstein:               Thank you for watching Fred Talks.


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