Vendors and intermediaries, such as brokers and insurance agents, need to be more forthright in discussing how the intermediaries are paid. Ann Mahrdt, director at The Spectrem Group, said a newly-released study found that many plan sponsors did not know how the intermediaries they buy plans from are compensated on an ongoing basis. “They have no problem understanding commissions,” she said. “It’s whether they are getting the services promised.” Of the 150 plan sponsors surveyed, 54% said they didn’t know what the broker or advisor was getting paid. Of those that did know, 35% were paying 1-25 basis points, another 10% were paying 26-50 and 1% said they were paying 50 bp or more. The study notes that larger companies--especially those with 1,000 participants or more--or those that use a consultant in the RFP process are much more likely to be aware of what they are paying.
Broken down by size, 60% of the plans with less than 200 participants and 61% with less than $5 million in assets knew what they paid in plan fees. When the plans reach the 1,000 participant level or $50 million in assets the number drops to 40% and 45%, respectively. Mahrdt said this partly reflects the fact that larger plans do a lot more negotiating and often have much more sophisticated RFP processes.
While it may seem that many smaller sponsors don’t understand the fees they pay well, Mahrdt said only 17% of the plans overall had no idea at all what they were paying. That indicates that vendors have been much better about disclosure, she said. While sponsors which changed providers paid less--no plan that had switched in the last two years paid more than 50 basis points--that is due to consultants helping the plans get out of retail share classes, she said.