Revenue Sharing Defined Contribution Plan

Let s go back to our example of john doe computers 401 k which has 12 million dollars.

Revenue sharing defined contribution plan. Unfortunately so is their improper administration. Collected wisdom on revenue sharing within 401k plans. 78 bps after rebates. Typical revenue sharing.

Revenue sharing for commission based plans in the employer sponsored retirement plan industry all components of the gross expense ratio with the exception of investment management fees are generally classified as revenue sharing. It is imperative that plan sponsors with fiduciary oversight of their organization s 401k retirement plan understand the distribution systems that most investment management organizations use and how they share revenue revenue that is an assets of the 401k plan. The plan could offer the higher cost investor share class 113 bps with 40 bps of revenue sharing that would actually be 5 bps less expensive 73 bps vs. A popular method is called revenue sharing.

Plan services are bundled and provided by a single provider xyz bank. Let s consider how fees are generated and allotted for a typical defined contribution plan. The funds are used to pay for the costs of. Fund b has a zero revenue sharing r6 share class with a published expense ratio of 71 bps.

Defined contribution dc retirement plan sponsors are not fully knowledgeable on fee issues according to retirement plan consultancy s callan associate s 2012defined contribution trends survey. Imagine a company john doe computers has a 401 k investment plan for their employees. The following diagram describes common revenue sharing arrangements for commission based plans. Forfeitures in defined contribution plans the term forfeiture comes from internal revenue code section 411 which addresses vesting requirements for qualified plans.

In the previous article we highlighted the disparity in fees when using traditional revenue sharing arrangements to pay for the administrative and recordkeeping costs of a retirement plan today let s focus on solutions. Erisa allows revenue sharing for retirement plan sponsors so that a portion of earned income from mutual funds would be held in a spending account. This approach allows service providers based on the plan sponsor s election to collect all or a portion of the plan administrative fees implicitly through the plan s investment options e g the investment options a participant selects see what is revenue sharing below. Dec 19 2018 2 min read defined contribution plan sponsors continue to come under scrutiny for plan fees.

Forfeitures are a common occurrence in defined contribution plans.