Investments in workplace retirement plans may levy a “revenue-sharing” fee. Those costs differ from fund to fund.
"There can be some inequalities in terms of who's paying for what," said Greg Ungerman, a senior vice president at Callan who leads a team working with workplace retirement plans.
The dynamic means a saver invested solely in index funds may not pay any revenue-sharing fees for 401 plan expenses, whereas another worker in the same 401 plan invested solely in actively managed funds may pay the fees.Employers have begun moving away from the practice, amid a flurry of lawsuits around excessive 401 fees and federal fee-disclosureFurthermore, money managers have increasingly offered versions of their investment funds that strip out a revenue-sharing fee.
Many employers have indeed shifted toward this type of fee model, Ungerman said. Often, that takes the form of a flat fee expressed in dollars, charged per plan participant. Sometimes, employers may not have much of a choice — they are somewhat at the mercy of the investment firms. A particular mutual fund family may always include revenue sharing, for example.
But technology has evolved such that many plan administrators are able to capture the revenue-sharing fee and funnel the money back to the investor who paid it — a workaround to make the 401 plan more equitable. However, this function isn't always available, and the employer has to choose the option.
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