Have You Conducted a Fee Equalization/Levelization?
Bill Tugaw, Governmental Plan Practice Leader
Fees in defined contribution (DC) plans can be complicated. Historically, fees have not been fully and simply disclosed, but the industry is changing towards greater and more understandable disclosure.

Simply put, there are two basic types of fees: administrative and investment-related. The investment-related fees are deducted from earnings on participant accounts and will vary from one investment to the next. These fees are paid to the firms that are making decisions about how the various funds are invested in the market. Participants will pay different investment-related fees, as the fees are based on where the participant chooses to invest their assets.

Administrative fees are also deducted from participant accounts. If the plan has not implemented a fee equalization
(also known as fee levelization), administrative fees will also vary from one investment to the next. Administrative fees are designed to pay for administrative-related activities associated with recordkeeping participant accounts. Such activities can include marketing, statements, education, processing contributions and withdrawals, issuing required tax forms and meetings with local representatives.

Fee equalization addresses the equity of the administrative fees being charged to participants. Unlike the duties associated with investment management, duties associated with administering participant accounts do not change depending on where a participant has directed his or her investments. Arguments can easily be made that administrative fees should be the same for all participants because they have the same recordkeeping requirements. In our experience, regardless of investment selection, account value, contribution level – the administrative duties are equal for all participants, so the administrative fees should also be equal.

We believe that every plan sponsor should consider a fee equalization structure in their plans, so participants share equally in the cost of administering this important benefit.

About the Author, Bill Tugaw
Bill has over 30 years of diversified financial services experience and specializes in public sector 457(b) Deferred Compensation, 403(b), 401(k), 401(a) defined contribution plan consulting and post-employment health plans (VEBA, §115 Integral Part Trusts, Retiree Health Savings Accounts). His primary focus is assisting public sector employers in meeting the fiduciary obligations associated with operating their plans.
Evaluating Your Plan and Fees?
Think More, Not Less.
Should you reduce your plan’s fees to better serve participants? Many vocal experts speaking on behalf of investors and participants say “yes” – unequivocally. But what about the investors and participants themselves? What do they say?

Invesco Consulting teamed up with language experts Maslansky + partners to get the answer. The nine-month study included in-depth interviews with commission-based brokers and fee-based advisors, dial-session focus groups with 90 investors, and a North American survey of 1,000 investors in the U.S. and Canada.

Throughout the study, there were very few complaints from investors about high fees. Certainly, there were concerns about fees being a drag on returns. But investors were far more worried about overcoming their mounting financial obstacles. They talked about how the industry has grown more complicated – the markets, investment options, retirement liabilities, investment regulations and taxes. And they said they need help and are willing to pay for it, because they don’t have the time or the inclination to do it themselves.

In the broader context, these investors wanted value – services, guidance and investments in exchange for fair and reasonable prices. Three distinct themes emerged from the research with investors and participants: be smart with our money, help us with more than investments and keep us on track. When you consider how to best serve today’s investors, these are the three primary benefits to focus on.


Number 1: “Be smart with our money.” In the absence of value, costs matter most. In the abundance of value, costs matter least.

Investors are not asking for low fees; they’re asking for high value. They expect to pay a fair price for financial services, because anything of value costs something. As for the low-cost option? Low costs usually mean high risk. That cheap car, half-off shirt or discount plumber often remind consumers that they get what they pay for.

Which of the following is most important to you?
That my investments are
It matters what they pay
How do you tell investors that you are being smart with their money?

In the study, several different approaches were dial-tested. The transcript below shows the results of one dial session where investors listened to a message about being smart with their money. The investors were each equipped with remote control dials and reacted to the message by dialing up when they liked what they were hearing and dialing down when they did not. All participants started their dials at 50. When dials reached 70 and above, the messaging worked. When dials fell to 35 or below, the messaging failed. 

The numbers below, in red , indicate how investors reacted to the messaging.

Dial Test
50 When it comes to your finances, it’s only natural to want to get the best value possible for the money you are paying. And my firm and I believe that what you pay matters. 61

It’s our duty to provide you with advice, investments and services at fair and reasonable prices, and we don’t take that responsibility lightly. Part of establishing a fair and reasonable price is making sure you get the most value possible out of the fee you pay. 68

That’s why now more than ever, the firm and I are working to offer you a greater level of service without increasing the costs you pay. We’re expanding the range of services under the umbrella of financial planning, like minimizing the taxes you pay on investments, planning for financial milestones and ensuring you’re on the right track to achieving the retirement you want. 81

Number 2: We need help with more than just investments.” It’s not about a product; it’s about a partnership.

Investors are asking for more help. The trend from commission-based brokers to fee-based advisors is not just due to the regulators. Investors want comprehensive and all-inclusive help that is coordinated by a long-term financial plan.

A good financial advisor does more than just execute trades.
Number 3: "Make us feel confident we're on the right track." It’s not about a financial plan; it’s about financial planning.

Finally, investors are asking for help tracking their progress toward their goals. They don’t want the set-it-and-forget-it approach. Instead, they want to know where they stand at any given time.

Which financial plan is best? Please select your top choice.
For more information on plan fees, please contact your plan advisor.

Priceless. Evaluating your plan fees? Think more, not less” was contributed by Invesco. “Priceless” is based on Invesco’s work with Maslansky + Partners. Invesco Distributors, Inc. is not affiliated with Maslansky + Partners.
Hey Joel!
Answers from a recovering former practicing ERISA attorney
Welcome to Hey Joel ! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,
Should I distribute the Fiduciary Investment
Review to plan participants?
Generous in Georgia

Dear Generous,

I appreciate your desire to provide detailed information to your plan participants, but hold your horses. While there is nothing legally preventing the sharing of the Fiduciary Investment Review (FIR) with participants, we do not recommend it and, in fact, strongly discourage it. The FIR is designed for delivery to fiduciaries, not participants. This is not only because the fiduciaries are more sophisticated but because the report is better understood (I would even say, only understood) when presented/explained by an advisor that knows the data. The average participant may be alarmed by watchlisted funds and take inappropriate action (i.e., remove them from his/her portfolio when that’s not the recommendation.) Further, we fear that participants will move all their money into the funds scoring 9 or 10 as you can imagine, doing so would ignore the critical strategy of diversification. Instead of sharing the report itself, I always recommend an employee communication from the plan sponsor. Something like – “Hey employees, the company has met with our plan advisor to review the plan investments and all is doing great. We take the monitoring seriously, we do it regularly and will let you know when/if a change is needed… Until then, don’t forget to join, increase your deferral, diversify, etc, etc.” No need to alarm unnecessarily.

Always here to give advice,

Joel Shapiro
About Joel Shapiro, JD, LLM
As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

If you have a question for Joel, please send it to your plan advisor. Maybe it will be featured in a future issue!
Participant Corner: Re-balancing Your Portfolio
This month’s employee memo provides participants with information on re-balancing portfolios — what it is, its purpose and how to complete one. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com. Please see an excerpt below.

As a participant in the company’s retirement plan, you are committed to saving for your future. Whether you are retiring in a few weeks or a few decades, you may need to protect your investment. A healthy way to do this is to re-balance your portfolio.

What is re-balancing?
Re-balancing is readjusting your portfolio back to the original asset allocation that took into account your risk tolerance and time horizon. Put another way, re-balancing forces you to adhere to your investment strategy.

You re-balance by selling assets that make up too much of your portfolio and use the proceeds to buy back those that now make up too little of your portfolio. The net effect is to “sell high and buy low.” Ultimately, regular re-balancing can increase the overall return of your portfolio over time. An automatic re-balancing feature may be available through your current retirement plan provider. Visit your provider’s website for more information.

Keeping in check
Experts recommend you re-balance at least once a year and no more than four times a year. Consider this a good opportunity to evaluate if your investment strategy is still in line with your original goals.

Suppose you enrolled in the plan at the beginning of last year and allocated 40 percent of your portfolio to bond funds and 60 percent to equity funds. Further suppose that when you received your year-end statement, it shows that 70 percent of your assets are in equity funds and 30 percent are in bond funds.

To stay within your acceptable risk level (which is what you determined before entering into the plan), you should sell enough equity funds to bring that back to 60 percent of your assets and buy enough bond funds to bring them up to 40 percent of your assets.

Initial Investment Direction: 60% Equities, 40% Bonds
Investment Allocation After One Year: 70% Equities, 30% Bonds
P&A Group Contact Information
Dan Halle, Regional Director 
Direct: (716) 362-5405  E-mail: Click  here.   

Richard Swanson, Regional Director
Direct: (716) 362-5404   Cell: (585) 330-2566   E-mail: Click  here

Chad Wilkinson, Director of Retirement Plan Sales
Direct: (716) 362-5401   Cell: (315) 415-8254  E-mail: Click  here
The "Retirement Times" is published monthly by Retirement Plan Advisory Group's marketing team. This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. (c) 2017. Retirement Plan Advisory Group. 

Mutual funds are sold by prospectus only. Before investing, investors should carefully consider the investment objectives, risks, charges and expenses of a mutual fund. The fund prospectus provides this and other important information. Please contact your representative or the Company to obtain a prospectus. Please read the prospectus carefully before investing or sending money. ACR#276410 03/18

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