“We have been seeing a pretty significant shift away from revenue sharing,” says Lori Lucas, defined contribution practice leader at Callan Associates Inc. in Chicago. “To some degree, it’s a response to recent participant lawsuits.”
According to the 2016 PLANSPONSOR Defined Contribution Survey, over half of reporting plans said they have ERISA/PERA [plan expense retirement accounts] accounts, which enables revenue sharing.
Russell Investments sees more sponsors shifting from bundled fees to separate investment fees and administrative fees, says Josh Cohen, managing director, defined contribution, in Chicago. “There is a move from revenue sharing, whether it is to R6—zero revenue—shares, collective trusts or separate accounts,” he says. “Which investment vehicle a plan will use is on a case-by-case basis, but larger plans tend to use separate accounts and collective trusts, whereas mutual funds still are more prevalent as you go down-market.”
“In the large-plan world, we are well down the track of eliminating use of revenue sharing, and, ultimately, large plans likely will not have revenue sharing,” Lucas says. “It could be a likely path for smaller plans, as well.”
Cohen expects more sponsors to get rid of revenue sharing across their investment menu. “It is accelerating, because sponsors and advisers get stuck in difficult decisions when they see that some participants pay revenue sharing to support administrative costs, and some do not,” he says. “Yet, the issue with removing all funds that pay revenue sharing is that you may be removing good funds.”