The Magic Six Steps:
Determining Excess Revenue and Lowering Total Plan Costs

We follow these steps when working with clients to negotiate lower total plan costs. We call them “magic” because, after you determine your total plan costs including any excess revenue, you can almost count on these steps leading you to reduced  plan costs.

1 Determine your average account balance.

2 Determine your total plan cost structure and revenue sharing arrangements.

3 Ask your service provider for their cost structure. Ask your recordkeeper how much they need to make on the plan including margin. If they won’t tell you, tell them that unless you receive the information ASAP, you will be sending a request for information (RFI) out to the marketplace to find out what you need to know.

4 Once your recordkeeper tells you how much they need to make (including their margin,) you can determine if excess revenue exists in your plan. Compare the recordkeeping cost against the revenue generated by the plan. If the revenue generated by the plan is greater than the cost to provide services, then excess revenue exists.

5 Squeeze out excess revenue by using lower-cost investment vehicles. Add or replace lower-cost share classes for investment vehicles.

6 Last and most important step! Negotiate long-term favorable pricing contracts using flat dollar, per participant fees.  Establish an excess revenue contract clause with your service provider that returns excess revenue back to the plan—either in the form of a direct dividend to participants or, through an ERISA-eligible account which can be used to pay for appropriate plan expenses.