Defined Contribution Plan Providers Hurt by Dwindling Fees
Pensions & Investments (11/02) Vol. 30, No. 23 p.3; Jacobius, Arleen

The costs of defined contribution plans have dipped 30 percent since Sept. 11, says a recent study by Boston Research Group, and while plan sponsors benefit from lower costs, service providers have seen a 50 percent plunge in revenue. Meanwhile, profits have fallen for record keepers and other providers in recent years due to rising expenses and weakening participant revenue. In fact, the research found that administrative costs dipped 8.4 percent to $18,354, and equity management costs dropped 31 percent to $269,997. In terms of providers, overall charges fell 20 percent for insurers and 31 percent for mutual funds. Moreover, Robert Wuelfing, president of consulting firm R.G. Wuelfing & Associates, says the combination of declining revenue and high costs has made 13 percent of plans unprofitable, and the industry continues to cut costs to offset revenue losses. With less money to manage, 401kExchange.com President Fred Barstein says providers are laying off servicers, wholesalers, and sales representatives, rather than fund managers. To survive, providers will need to eliminate unprofitable clients, implement automated services, and keep participant accounts for more than the average six years. By refusing to take new business, Wuelfing believes providers can concentrate on their sales team and work to control their pricing and costs, something fewer than 15 percent of providers have accomplished.


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