Fee Levelization

by: , DCIO National Account Senior Associate, MainStay Investments

In It’s Never Really Free, common and more basic methods of paying plan expenses were reviewed, particularly in the event of shedding revenue-sharing arrangements – in part or in whole – from a plan fund lineup. Another form of payment arrangement is fee levelization.

Revenue-sharing arrangements, on a per share basis, vary from fund to fund. Fund A may pay more or less revenue share than Fund B, but both funds may be available in the same plan fund lineup. As a result, some plan participants pay more in revenue share than other participants with the same account balance, but different investments.

Fee levelization, broadly speaking, seeks to balance fees and expenses across the participant population by incorporating a system of credits and debits on participant balances, based on the actual cost of plan services against the revenue share being paid.

As the retirement plan is set up and benefits are decided upon, a retirement plan service provider will then price the plan and determine the expense necessary to operate it. Once the price is determined reasonable and is agreed upon, the fees are paid from the revenue share that is charged, based on the participant’s investment selection. Any “excess” revenue share (revenue share paid above and beyond the service provider’s stated fee) paid by select participants may get restored in the form of credits to their account balance. On the other hand, participants that do not meet the minimum revenue share required to pay their share of the service provider’s expenses may find debits from their account to offset any imbalance in participant payments to the plan.

There are a number of actuarial calculations that take place in a fee-levelization arrangement, based on numerous variables, and a more nuanced understanding should be obtained by plan fiduciaries who may want to explore plan payment arrangement beyond straight revenue sharing. ERISA does not pre-determine a permissible level of fees nor does it promote or approve one payment arrangement over another. ERISA does, however, state that fees must be reasonable. Having a number of options available for comparison may help plan fiduciaries settle on what is in the best interest of the plan participants.

For Illustrative Purposes Only:

Assume XYZ Recordkeeping Services determines that to provide the necessary service for the ABC Ballpoint Pen Company’s 401(k) plan, they will need to charge a revenue share of 0.35%.

The Plan Fund Lineup
Rev Share of Fund Required Recordkeeper Revenue Credit or Debit
Fund 1 0.25 0.35 -0.10
Fund 2 0.35 0.35 0.00
Fund 3 0.50 0.35 0.15
Fund 4 0.50 0.35 0.15
Fund 5 0.00 0.35 -0.35
Fund 6 0.00 0.35 -0.35

This article is for educational purposes only and may not be redistributed by the recipient without prior written consent from New York Life Investment Management LLC. This communication is not intended to be an offer or solicitation of investment advisory services or products.
Neither New York Life nor its agents or affiliates provide tax, legal, investment, or accounting advice. Plan sponsors should speak to their own tax, legal, or investment advisor or accounting professional regarding their specific situation.

The information contained herein is general in nature and is provided solely for educational and informational purposes.

All investments are subject to market risk, including possible loss of principal. Diversification cannot assure a profit or protect against loss in a declining market.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.

Prepared for an Institutional Audience.

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Jeffrey Zielinski, CRPC®, CRPS®

DCIO National Account Senior Associate, MainStay Investments

Jeffrey Zielinski is a DCIO National Account Senior Associate helping cover our home office and field relationships. He joined New York Life MainStay Investments in 2016. Previously, Jeff’s experience includes John Hancock RPS (Formerly New York Life RPS), ADP Retirement Services, and

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