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HUMAN RESOURCES
Retirement plan recordkeeping may get more expensive in 2022.
If your retirement plan recordkeeper wasn’t acquired within the past few years, don’t be surprised if it happens in 2022. The frenzied M&A activity across corporate America has been particularly evident in the retirement plan recordkeeping industry, and industry observers predict continued consolidation in the years ahead. The reasons industry stalwarts like Prudential, Wells Fargo (Wachovia) and Mass Mutual have exited the recordkeeping business are many, but a primary contributor has been the intense fee compression seen by the industry over the past decade. The organizations that remain are desperately seeking alternative revenue sources, leaving plan sponsors with several new concerns. Emboldened by the proliferation of Employee Retirement Income Security Act (ERISA) class-action lawsuits, plan sponsors have had great leverage to reduce the base recordkeeping costs of their plans. As recordkeepers look for alternative sources of revenue, their focus has turned to plan participants. A cautionary reminder for all plan sponsors: ERISA clearly mandates that plan fiduciaries must act in the sole interest of their participants and, therefore, are duty-bound to understand and monitor all revenue sources their plan administrative service provider avails itself of.
Revenue sources from participants
In addition to the base plan administrative fees, which most plan sponsors have paid from participant accounts, participants are also assessed transaction fees based on individual activity within the plan. Initiation of a loan and a corresponding annual maintenance fee, processing any form of distribution and splitting accounts as the result of a qualified domestic relations order (QDRO) are all examples of fee-generating activities charged by the recordkeeper on top of the negotiated base administrative fees charged to the plan. These fees have seen upward pressure recently and will continue to be eyed by the recordkeepers, as most plan sponsors review only individual transaction fee amounts and
By Joseph Topp, CPA
not the aggregate annual revenue the collective fees generate. We advise clients to track the aggregate amount and weigh it when evaluating the plan’s total cost competitiveness in the current market.
Managed account services
The fastest-growing trend we are seeing is a push by recordkeepers to add a managed account service to the plan features. A managed account entails a plan participant turning over full discretion for the investment and asset allocation of their accounts. The service comes with an ongoing fee that ranges from 20 to 50 basis points (0.20% – 0.50%). This fee is applied to the entire account balance, so for a participant with a balance of $129,000,1 utilization of this service would cost between $258 and $645 per year. At first glance, this fee may not appear meaningful, but remember, this fee is in addition to embedded investment manager fees (fund expense ratios), the base annual recordkeeping fee and participant transaction fees. The recordkeepers’ hard push for the managed account service is positioned as their response to participant requests for more help managing their retirement savings and serves as a solution for plan sponsors who do not have a well-developed strategy to provide participants with ongoing general education or opportunities to receive individual help in managing this aspect of their financial situation. The revenue potential is elevated by a
strong push from recordkeepers to make the managed account service the qualified default investment alternative (QDIA) offered by the plan, often replacing a target retirement date solution. Across our client base, for plans with assets between $20 and $100 million, the average investment management expense is 0.55%. The addition of a managed account service significantly increases the overall cost to the participant, and most managed account services we’ve evaluated have little or no track record that suggests superior investment returns.
Cross-selling services to participants
One of the greatest attractions for an organization to provide recordkeeping services to a participant-directed retirement plan is the proximity it affords to the individual plan participants, who represent potential retail clients for the organization. In performing their services, recordkeepers have access to a tremendous amount of information on individual plan participants: age, job title, income, account balance and outside financial information. This information is willingly provided by participants who contact the call center, complete retirement readiness calculators or utilize the account aggregation tools. Margins on retail services tend to be meaningfully higher than those on retirement plan administration, so the temptation to aggressively pursue these opportunities is difficult to ignore, particularly in a period of aggressive fee compression. Access to and use of valuable participant information has become the subject of ERISA litigation. In 2019, Vanderbilt University settled a class-action suit involving their two 403(b) plans. One of the complaints listed was the university’s plan fiduciaries allowing one of the plan’s recordkeepers to use participant data to cross-sell services outside the plan. As part of the settlement agreement, Vanderbilt agreed to explicitly prohibit all future service providers from using participant personal data to promote services and products outside the plan.
Plan sponsor action steps
As fiduciary to your organization’s plan, your primary responsibility is to the participants. Diligence over plan assets and recordkeeping fees extends well past simply benchmarking the recordkeeping base fee to the organization and must include an understanding of all revenue generated by your service providers resulting from their affiliation with your organization. If you are utilizing or considering a managed account service, you have the dual task of evaluating the service’s investment performance and measuring the fee revenue generated from plan participants. Diligent fiduciaries will also closely review their services agreement for language allowing the recordkeeper to directly use or share
participant personal information across their organization for retail purposes. Plan sponsors uncomfortable allowing these practices have successfully negotiated with their providers to end unwanted conduct and amend the contract accordingly. Knowing that participants often use other services and products offered by plan recordkeepers, you should request information on the scope of these activities and any revenue generated. All of these revenue sources should be evaluated in aggregate when determining whether your retirement plan’s fees are reasonable and competitive in today’s marketplace.
Joseph Topp, CPA, is a principal and vice president – investment consulting services at Francis Investment Counsel LLC (Brookfield), an investment consulting firm that focuses solely on ERISA fiduciary services. Contact him at 262-781-8950 or joseph.topp@francisinvco.com.
Janice Leigh Froelich, CPA (1963 – 2022) Janice “Jan” Leigh Froelich, CPA, age 58, died on Saturday, Jan. 1. She graduated from Middleton High School in 1981, obtained an accounting degree from the University of Wisconsin and quickly became a CPA. She began her accounting career in Los Angeles at Coopers & Lybrand. Upon returning to Madison, she became a devoted employee for 30 years at Johnson Block & Co., becoming a partner in 2005. Froelich specialized in auditing nonprofit organizations and over the years mentored young professionals, whom she referred to as “her kids.” Several of her mentees are now partners in the firm. Her last years were spent as president of the company. In addition to her career, Froelich served on the boards of multiple nonprofits, including one of her favorites, the Ice Age Trail. Her community service included brush management projects along the trail. Froelich is survived by her husband, Robert Novy Jr.; both parents; four brothers and one sister; nieces and nephews; and many other relatives and friends.
Donald Howard, CPA (1929 – 2022) Donald Howard, CPA, age 92, passed away on Thursday, Jan. 6, in Wausau. He graduated from Wausau East High School in 1947 and went on to earn his BA from Valparaiso University in 1951. He then enlisted in the United States Marines and served his country during the Korean War. Howard worked as a CPA until his retirement at age 87. He began his career as a member of a general accounting firm and later become partner and owner of Krause, Howard & Co. In addition to his WICPA membership, Howard was active in Good Shepherd Lutheran Church, American Legion Post 10, the VFW, the Town of Texas Lions Club and the Wausau Elks Club. He is survived by his wife of 67 years, Mary Ann; their daughter and two granddaughters; their son and two grandsons; his brother; and several nieces, nephews and cousins.
Bruce Roberts, CPA (1936 – 2022) Bruce Roberts, CPA, 85, passed away on Saturday, Jan. 29. Roberts graduated from Madison East High School in 1955 and obtained a degree in geophysics from UW–Madison in 1960. He worked in the oil fields of Laramie, Wyoming, for a year before returning to Madison to earn a master’s degree in business and accounting in 1962. After graduating, he worked for Arthur Andersen in Milwaukee and Chicago and Ronald Mattox & Associates in Madison. In 1968, Roberts began teaching accounting at UW–Whitewater while concurrently pursuing a PhD at UW–Madison. He returned to his career in accounting by obtaining employment at Rural Insurance and relocated his family to Madison. Later, he co-founded the Fitzpatrick and Roberts Certified Public Accounting firm. He was a lifetime WICPA member and served on the WICPA board of directors from 1976 to 1977. After retiring, Roberts taught accounting at Edgewood College and was nominated by his students for the Teacher of the Year Award. He is survived by his wife of 43 years, Chris; two daughters and two stepchildren; six grandchildren; his sister; and a niece and nephew.
Raymond Schmitz, CPA (1932 – 2021) Raymond “Ray” Schmitz, CPA, passed away on Christmas Eve, 2021. He was 89. Schmitz was co-salutatorian of his 1950 Sauk City High School graduating class and went on to earn his degree in accounting from UW–Madison in 1954. He was a member of three national scholastic honorary fraternities, including Phi Beta Kappa. Prior to receiving his CPA certification in 1957, Schmitz served two years as an officer in the Army Transportation Corps, during which time he served as comptroller of the U.S. Army base in Fort Story, Virginia. He was employed with Ronald Mattox & Associates in Madison upon his return and in 1961 became CFO of the University Book Store, where he stayed until joining Gilson Medical as controller and VP of finance in 1966. He remained with Gilson until his semi-retirement in 1996; he then went on to serve several Madison organizations as a part-time consultant before completing his accounting career in 2018. He is survived by his wife of 67 years, Jenny; two children; three grandchildren; one brother and one brother-in-law.
Victor Weiler, CPA (1936 – 2022) Victor Weiler, CPA, a lifetime WICPA member, passed away Thursday, Jan. 6. He was 85. After graduating from St. Mary’s High School in Kenosha, Weiler went to Marquette University and earned a BBA in accounting in 1958. From 1958 to 1964, he proudly served in the National Guard. Afterward, Weiler worked as a CPA for 30 years. He was promoted to partner at Conley, McDonald, Sprague within 10 years of starting his career and was the lead partner of the Kenosha office from 1983 to 1993. In 1993, he formed his own firm, Victor N. Weiler S.C., and in 1998, he merged his firm with Clifton Gunderson, which later became Clifton Larson Allen. He retired as a partner in 2001. Weiler was a board member of the Kenosha Foundation, past president of the Wauwatosa Chamber of Commerce and past president of the Kenosha Chamber of Commerce. He was actively involved for over 50 years with Rotary International, National Ski Patrol and South Shore Yacht Club, where he was a lifetime member and past commodore. Weiler is survived by his wife, Donna; his four children; his two grandchildren; his sister; and numerous nieces, nephews, great-nieces and great-nephews.
If you are aware of a member obituary and believe it should be included in Memorials, please send a copy of the obituary or contact Marcia Tillett-Zinzow at mtzinzow@icloud.com.
