Large plans have far lower fees per participant than smaller plans do, but even these plans aren’t always such a good deal for plan participants. The Allstate 401(k) Savings Plan is one example. Here is a summary of the information shown on the 2021 5500 form:
Plan assets: $7,065,769,220
Employer contributions: $110,395,894
Employee contributions: $574,126,173
Plan participants: $61,520
$3,190,520 (Alight Financial Advisors)
$1,933,275 (Alight Solutions LLC)
$809,675 (State Street Global Advisors Trust Co)
$522,136 (Invesco Advisors)
$406,356 (The Northern Trust Co)
$271,415 (Northern Trust Investments, Inc.)
$112,320 (Allstate Insurance Company)
$75,000 (Mercer Investment Consulting, Inc.)
$10,000 (Willis Towers Watson LLC)
$8,757 (Mercer (US) Inc.)
The total advisory fees per participant are approximately $117 per participant. I didn’t include the last two fees and the fees from Allstate Insurance Company because I wanted to focus solely on the advisory fees. Is this per participant fee reasonable? I would argue it isn’t for several reasons. First, I only charge slightly more than this fee for much smaller clients well below 500 participants. Second, the fund line-up is not unique, so the advisors don’t seem to be providing any kind of exceptional value in terms of selecting and monitoring funds. Ted Benna, the inventor of the 401(k) plan, has elaborated:
“The advisors are getting paid each time they go through the process with an employer to help pick funds as if they’re doing an original piece of work. There are more than half a million 401(k) plans, so that’s happened over half a million times. The fund menus aren’t that much different. But advisors are getting paid as if they’re doing an original piece of work. That’s just bizarre, extremely inefficient, and much too expensive.
First of all, they need to get away from asset-driven compensation and be paid a fee for service, the same as accountants or attorneys, who don’t get paid a percentage of corporate [client] assets. Their role should shift to helping people focus on how to succeed at retiring successfully, not on investment return. Building a smarter investment mix is pretty much of a commodity now. The focus should be on goals: “I want to retire successful. Help me do that.
Instead of teaching clients small-cap, large-cap, value vs. growth and that stuff, help participants find ways to save more to do a better job of financial management and focus on the stream of income they’ll [need] for their retirement.”
Third, nearly 50% of the funds are in the S & P 500 index fund, a U.S. Bond index fund, and target date funds. How much actual work is required to select and monitor these funds? How much time has been spent comparing the features of the target date funds to other fund families? And how much time have the advisors spent fielding participant phone calls and conducting in person meetings? These are questions that need to be answered in order to determine a reasonable fee.
Fourth, the reviews of the primary advisor are abysmal – shown by multiple sources, including The Better Business Bureau.
To put these fees into perspective, let’s compare them to the New York Times 401(k) plan who, per their 2021 5500 form, had 2,535 participants and paid $214,929 and $139,440 in fees to Vanguard Advisors and Vanguard Group. So their advisory fees were $85 per participant and total fees were $140 per participant. A much larger plan like Allstate should have lower advisory fees per participant, especially if the service is poor.