Case Study: Focused on Fees, Fairness, and the Future
In order to offer a best-in-class retirement plan benefit to their participants, the Worcester Polytechnic Institute (WPI) Retirement Plan Committee has worked diligently to reduce overall plan fees, enhance fee fairness, and improve participant retirement readiness.
Reducing Retirement Plan Fees
In the past five years, WPI has negotiated a reduction of over 57% in their overall recordkeeping costs. This was due in part to the annual benchmarking of fees and the resulting negotiations. Also contributing to the reduction was the comprehensive request for information (RFI) that the committee issued to existing and outside recordkeepers in 2018. Through this RFI, WPI was able to confirm that the cost of providing additional choice to participants by having two recordkeepers was reasonable. Despite no changes being made to the existing arrangement, the RFI encouraged competition between the two existing recordkeepers, which resulted in lower fees.
The Share Class Project
With fees lowered, WPI turned their attention to ensuring the fairness of fees. The Institute engaged in a thorough analysis of fee allocation and fairness, determining that a levelized fee arrangement was the most equitable and appropriate option for their participants. Thus, WPI participants all pay the same pro rata share of recordkeeping and administrative fees, rather than the fees varying dependent on investment allocation.
In moving to a levelized fee arrangement, WPI’s retirement plan committee launched an investment analysis and share class project to analyze the full investment option array, paying particular attention to share classes. The committee engaged in a thoughtful conversation regarding which options offer participants the lowest net investment cost and found that in many cases for a given investment option, the share class with the lowest expense ratio was not the option with the lowest net investment fee (expense ratio minus revenue share). WPI determined that the net investment fee is the true cost to WPI participants, since revenue sharing will be returned to participants invested in the fund paying the revenue share as part of the leveling process. Thus, instead of offering the share class with zero revenue share without any additional analysis, the committee implemented a policy to select the share class for each option with the lowest net investment fee. The committee revisits this data annually to ensure that each share class selected continues to follow this policy.
As part of the investment analysis share class project, WPI also reviewed asset class coverage across both providers, adding an emerging markets equity option on each recordkeeper’s platform to allow for greater diversification. These changes and the pricing adjustments were communicated to employees in a multi-channel strategy with resources available both at WPI and their recordkeepers to ensure participants understand the plan, its design, and its pricing.
Contributions and Communication
Beyond ensuring fee fairness, WPI has a strong commitment to structuring their plan and supporting their participants to provide the best possible retirement readiness outcomes.
WPI has a diverse population spanning the financial literacy spectrum. In order to reach employees of various income levels and backgrounds, WPI provides year-round opportunities for different types of investors to receive in-depth education and guidance, along with individualized advice, to ensure they have the help they need to encourage savings and participation.
For many years, the Institute has had a 5% mandatory contribution for the majority of their participants, while also providing an employer contribution of 11%. Thus, the participation rate at WPI is virtually 100%, with most of their employees contributing at least 16%. The plan is designed with features such as Roth 403(b) contributions to allow participants in different tax situations to have additional choices. Features such as in-plan annuities are also offered to allow participants to have supplementary retirement planning options.
We believe that WPI has shown progressive thinking and fiduciary oversight by focusing on fee equality across participants. Their work to benchmark and negotiate fees has resulted in a reduction to plan fees. The WPI plan design, coupled with their contributions and communication strategy, resulted in a 12% increase in the average account balance over the past four years, from $176,000 to $198,000. For their efforts, WPI was named a finalist for PLANSPONSOR’s 2019 Plan Sponsor of the Year in the nonprofit defined contribution category.
Note: Awards do not imply any guarantee of a certain level of results, nor do they represent a current or past endorsement of Cammack Retirement Group by any of its clients. The Plan Sponsor of the Year annual award program recognizes retirement plan sponsors that show a commitment to their participants’ financial health and retirement success. To be considered, a sponsor must be recommended for the award by a third party. All nominees are asked to complete details about the plan’s administration, participant statistics and data.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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