Are plan costs fairly shared by employees?News added by Benefits Pro on June 6, 2014
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By Nick Thornton

Employers may want to do a better job of making sure the administrative costs of their plans are fairly distributed among employees.

Plan sponsors tend to be most concerned about the overall, annual costs to their plans, Aon Hewitt said. Half of the companies it surveyed reported being “very” or “somewhat” concerned about plan expenses, while three-quarters say they review their fees and costs to their plans annually.

But Aon Hewitt data shows that employers are paying far less attention to how those fees and costs are distributed among enrollees, often meaning that some employees bear a greater share of costs than others.

One out five plan sponsors told Aon Hewitt they recently restructured administrative fees so that they could be assessed more equitably. Of the remaining group, only 6 percent say they foresee making such adjustments this year.

“It is important for plan sponsors to conduct a more detailed analysis to determine if certain employees are shouldering a larger percentage of fees than others,” said Winfield Evens, director of HRO Investment Solutions & Strategy at Aon Hewitt.

“Because of the wide range of payments provided by different asset managers and share classes, in many situations, the majority of plan costs are paid by a minority of workers,” added Evens.

In some cases, enrollees with the same account balances pay significantly different amounts for plan administration.

Evens says that best-in-class employers are designing their fee model so that an employee would pay the same amount in fees, regardless of how assets are allocated.

The firm’s study recommends employers assess how much each participant is paying. Reducing exposure to unnecessary costs is also advised. Choosing institutional share classes can reduce fees and bolster balances. A decrease of one-quarter of 1 percent can mean real earnings for a worker over the course of a 40-year career.

In order to evenly distribute costs, sponsors could select funds that don’t reimburse the plan for administrative costs, and instead pay for administration costs by deducting evenly from all of the enrollees’ accounts, assuring each participant is paying the same percentage of their assets.

More employers are using an investment lineup that charges a “discrete fee” to each account on a monthly or quarterly basis to cover the cost of plan administration. Aon Hewitt says 26 percent of plan sponsors use this approach, up from 11 percent in 2009.

Originally published on BenefitsPro.com
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