COLLECTED WISDOM™ on Revenue Sharing Within 401k Plans

It is imperative that plan sponsors with fiduciary oversight of their organization's 401k retirement plan understand the distribution systems that most investment management organizations use and how they share revenue, revenue that is an assets of the 401k plan.

Here is information to help you understand the issue of revenue sharing.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.

12b-1 Fees and a Say on Pay: Just Sayin'

The author suggests "that whether the new fiduciary rule ever sees the light of day, advisors should truly consider whether or not the 12b-1 fee system is the correct way for them to gather their deserved compensation. Perhaps it is time to finally remove those fees from the equation."

Source: Napa-net.org, August 2024

12b-1 Fees: What They Are and Why You Should Avoid Them

Avoiding 12b-1 fees is one of the most important ways employers can lower the cost of their 401k plan. Paying higher fees does not guarantee better performance it could be the opposite. This article discusses what 12b-1 fees are and how to avoid them.

Source: Forusall.com, July 2023

ICI Defends Revenue Sharing and Higher-Fee Share Classes in the Tenth Circuit Barrick Gold Case

The Barrick Gold case is noteworthy because the Investment Company Institute filed an amicus brief in which they defend the use of revenue sharing and actively managed investment options. The article's author thinks it is the best argument they have seen explaining how rampant excessive fee litigation is causing plan fiduciaries to limit their investment choices in retirement plans by avoiding investments with higher potential returns because of the fear of litigation. ICI argues that defensive investment selection will harm participant outcomes.

Source: Euclidspecialty.com, November 2022

Lawsuit Questions Use of Revenue Sharing by Ricoh USA

Former Ricoh USA employees have filed a lawsuit against the company, its board of directors, and its 401k plan investment committee alleging breaches of fiduciary duty under ERISA. The complaint alleges that the company and investment committee failed to objectively and adequately review the plan's investment portfolio to ensure that the cost of each investment option was not excessive. Additionally, the complaint alleges that the plan sponsor failed to control the plan's recordkeeping and administrative costs.

Source: Planadviser.com, February 2022

Revenue Sharing Declines Among DC Plan Sponsors

The percentage of DC plans using revenue sharing -- or a combination of revenue sharing and other forms of plan payments -- has been declining over the years. The strategy has been a casualty of trends in lower fees, more transparency, government regulation, litigation risk, and fiduciary liability insurance requirements.

Source: Pionline.com, October 2021

Court Affirms Arrangement Between Sponsor and Recordkeeper Not a Prohibited Transaction

The 10th U.S. Circuit Court of Appeals was asked to review a lower court's decision in Ramos v. Banner Health, in which participants in Banner Health's 401k plan alleged plan fiduciaries breached their duties under ERISA. Following an eight-day bench trial, the U.S. District Court for the District of Colorado concluded that Banner's uncapped, revenue-sharing agreement with its recordkeeper Fidelity did not constitute a prohibited transaction under ERISA.

Source: Planadviser.com, July 2021

Plan Sponsors Should Prudently Manage ERISA Accounts

ERISA accounts are created by revenue sharing from funds in a DC plan, and many participant lawsuits have questioned the prudent and fair management of revenue sharing.

Source: Plansponsor.com, June 2021

Lawsuit Says Retirement Plan Fiduciaries Failed to Monitor and Limit Revenue Sharing

According to the lawsuit, from 2015 through 2019, plan participants paid a portion of the fees for retirement plan services provided by the plan's recordkeeper directly through deductions from their accounts. Also, RPS fees were paid indirectly through revenue sharing. "Based upon a review of the plan's Forms 5500, and upon information and belief, the plan did not rebate any of the monies received from the revenue sharing back to plan participants to offset the RPS fees paid by the participants," the complaint says.

Source: Planadviser.com, April 2021

Analysis Shows Participant Fees Higher in Plans With Revenue Sharing

Mutual funds that pay revenue sharing to recordkeepers of DC plans are more likely to be added to plan investment menus and are less likely to be deleted from them, according to researchers from Vanderbilt University; the University of Texas at Austin, and the National Bureau of Economic Research; and the Board of Governors of the Federal Reserve System. In a paper, the researchers also noted that Investment Company Institute data shows that in 2018, mutual funds managed more than 60% of the $5.2 trillion invested in 401k plans.

Source: Planadviser.com, January 2021

Mutual Fund Revenue Sharing in 401k Plans

Recordkeepers in DC plans are often paid indirectly in the form of revenue sharing from third-party funds on the menu. We show that these arrangements affect the investment menu of 401k plans. Revenue-sharing funds are more likely to be added to the menu and are less likely to be deleted. Overall, revenue-sharing plans are more expensive as higher expense ratios are not offset by lower direct fees or by superior performance. Rebates increase with the market power of the recordkeeper suggesting that third-party funds may revenue share to gain access to retirement assets.

Source: Ssrn.com, December 2020

Matrix Trust Accused of Being Deceptive About Fees

Matrix Trust Co. is facing a 401k class-action lawsuit from a Minnesota engineering firm that alleges the company took millions of dollars from retirement plan accounts. MBA Engineering alleges Matrix Trust Co., a subsidiary of Broadridge Financial Solutions, unlawfully retained potentially hundreds of millions of dollars in 12b-1 fees, non-float cash interest, and float cash interest from more than 60,0000 customers through nondisclosure and concealment.

Source: Planadviser.com, July 2020

Revenue Sharing, Recordkeeping Fees at Issue in Trader Joe's Lawsuit

The Trader Joe's Company has been named as the defendant in a new ERISA lawsuit filed in the U.S. District Court for the Central District of California. Employees of the grocery chain accuse their employer of acting imprudently in the selection of retirement plan investment options and of failing to monitor the services and fees paid.

Source: Planadviser.com, January 2020

Revenue Sharing: Five Reasons for 401k Fiduciaries to Avoid It

All 401k plans require three basic administration services including asset custody, participant recordkeeping and Third-Party Administration. A 401k provider can be paid "direct" or "indirect" fees from plan assets to deliver these services. Direct fees are deducted from participant accounts, while indirect fees are paid by plan investments. The most common form of indirect fee is revenue sharing. Here are five reasons why 401k fiduciaries should pay direct fees for plan administration services instead.

Source: Employeefiduciary.com, July 2019

12b-1 Fees: What They Are and Why You Should Avoid Them

How Much Am I Getting Charged for My 401k? It's a simple question, right? But, like many things when it comes to the 401k, the answer is anything but. There are quite a few types of 401k fees - management fees, custodian fees, expense ratios, all-in fees, and many more. It's a lot to keep track of. Of the confusing 401k fees, few are more cryptic than 12b-1 plan fees. 12b-1 fees are paid to the salespeople who distribute mutual funds and are paid from the fund's assets. But what exactly are they? How do you know if you're paying them? What impact do they have on you? And how can you avoid these fees in the future?

Source: Forusall.com, February 2019

Understanding Revenue Sharing and the Flow of Money in Retirement Plans

it's critical for employers to understand the various components of their retirement plans' fees, particularly indirect fees like revenue sharing arrangements. This 4-page article describes common ways in which money flows through retirement plans. Each provider may operate differently, so be sure to check with your provider for information specific to your plan.

Source: Grinkmeyerleonard.com, September 2018

401k Fee Levelization -- It Can Make Revenue Sharing Worse

Direct fees are more transparent and fair than revenue sharing payments, making it easier for 401k plan sponsors to keep their 401k fees in check. However, some 401k providers are now claiming to have fixed the problems with revenue sharing using a recordkeeping process called "fee levelization." This article discusses what "you should understand...about fee levelization."

Source: Employeefiduciary.com, July 2018

Revenue Sharing -- The Horse and Buggy of the Retirement Plan

If you currently handle plans with revenue sharing, take a hard look at other arrangements. As an advisor, if you run across a plan with revenue sharing, bring up the points mentioned here to the plan sponsors. You may have just found a new client.

Source: Nwp401k.com, April 2018

More 401k Plans Moving From Revenue-Sharing Model

Annual surveys by Callan show a steady decline in the use of revenue sharing. Many 401k plans are moving away from revenue sharing as executives cite the need for greater transparency, simplicity and democracy in how fees are assessed to participants. But confusion remains among some plan executives.

Source: Callan.com, March 2018

Self-Reporting to SEC of 12b-1 Conflicts of Interest Not Without Risk

Offering some preliminary commentary on the SEC's newly announced adviser 12b-1 fee conflict of interest "amnesty" program, as it's being referred to in the trade media, Wagner Law Group attorneys warn of the inherent risks in the self-reporting of violations.

Source: Planadviser.com, February 2018

What Is Revenue Sharing and How Does It Work?

There's a few ways to pay for retirement plan administrative fees. A popular method is called revenue sharing. This approach allows service providers, based on the plan sponsor's election, to collect all or a portion of the plan administrative fees implicitly through the plan's investment options.

Source: Principal.com, August 2017

Revenue Sharing: What's the Right Way to Apply It in a 401k Plan?

Revenue sharing became an industry concern as technology advanced in the late 1990's. It comes in various forms or names. To understand the question of how to apply revenue sharing in a 401k plan, first we must examine what revenue sharing really is, what form it takes and how it is commonly applied.

Source: Unifiedtrust.com, August 2017

Avoid Getting Sheared by Revenue Sharing

One of the most common approaches to recordkeeping fee payment is revenue sharing. It's not easy to track investment revenue shared with 401k plan recordkeepers, but fiduciaries must.

Source: Amazonaws.com, August 2017

Revenue Sharing Spurring 401k Lawsuits With More to Come

With the focus on 401k and 403(b) lawsuits, it may be time for employers sponsoring a corporate retirement plan to get out of the line of fire by eliminating revenue sharing altogether.

Source: 401ktv.com, June 2017

12b-1 Fees: It Is Time to Bid Them Farewell

Given the 12b-1 fee's implicit conflicts -- and their declining relevance -- arguably it's time to create a more appropriate pricing structure for the realities of today's investment marketplace.

Source: Kitces.com, March 2017

ERISA Liability from 401k Plan Revenue Sharing

While popular for many reasons, 'revenue sharing' arrangements have been a magnet for class action litigation, and teachings from recent cases (and the accompanying sizable settlements), suggest that employers should review their 401k plans to stay out of the litigation "line of fire." This article analyzes two recent cases where plaintiffs challenged revenue sharing arrangements under ERISA and also provides recommendations for employer to reduce the risk of costly litigation involving revenue sharing arrangements.

Source: Weil.com, December 2016

Revenue Sharing in Managed Accounts Targeted by Class Action Law Firm

Managed accounts within DC plans continue to be targeted by class action law firms with the latest filed by Schneider Wallace on behalf of three participants in the $14 billion Ford Motor Company plan against their recordkeeper Xerox HR Solutions.

Source: 401ktv.com, November 2016

What Do 401k Plan Fiduciaries Need to Know About Revenue Sharing?

ERISA does not prohibit retirement plan revenue sharing or even the retention of revenue sharing payments by retirement plan service providers. So, what's the concern? What do 401k plan fiduciaries need to know about revenue sharing? Here are some answers.

Source: Klgates.com, November 2016

Regulators Targeting 12b-1 Fees, Is Revenue Sharing Far Behind?

Plan sponsors have a fiduciary duty to make sure the fees on their 401k plans are reasonable, including any 12b-1 fees. We are also seeing more intense scrutiny of 12b-1 fees by the SEC. Paper reviews a number of topics related to this issue including the fiduciary liability risks assumed by plan sponsors who use funds with 12b-1 fees.

Source: Fiduciarynews.com, July 2016

How Recaptured Revenue-sharing Funds Can Be Used

In this one-page article, Fred Reish discussed how excess recaptured service provider's compensation is handled, and how to allocate plan expenses. The articles also highlights the creation of recordkeeping systems that "equalize."

Source: Drinkerbiddle.com, June 2016

Is Tibble the End of Revenue Sharing?

This article summarizes the evolution of revenue sharing over the past ten years and examines its future through the lens of the recent U.S. Supreme Court decision in Tibble v. Edison and the subsequent uptick in 401k fee litigation.

Source: Mwe.com, March 2016

Will Referral Fees in DC Plans Survive?

Many benefit brokers, CPAs and even attorneys also receive referral fees, with some "accommodating" BDs set up just to help these unlicensed professionals get paid. Fred Barstein looks at whether these fees survive greater disclosure and the pending DOL fiduciary rule.

Source: Napa-net.org, March 2016

Revenue-Sharing Payments

An answer to the question, "I am a fiduciary investment adviser to ERISA plans and receive an advisory fee for my services. I also own a company that provides recordkeeping services to ERISA plans. May I recommend mutual fund investments to those plans that pay revenue sharing to my recordkeeper company?"

Source: Planadviser.com, March 2016

New Great West Case and Revenue Sharing

Add Great West under their Empower Retirement brand name as the latest bundled provider being sued. Great West is being sued for revenue sharing fees from mutual funds as part of their program.

Source: Jdsupra.com, January 2016

Is Revenue Sharing in 401k Plans Fair?

Transparency should be a major factor in complying with the intent of ERISA and proposed DOL regulations. If revenue sharing is eliminated and providers charge companies or participants for recordkeeping services as a line item expense, transparency is inherent and participants can be treated more fairly.

Source: Linkedin.com, October 2015

The Duty to Monitor Non-Fiduciary Service Providers

This article discusses the duty to monitor non-fiduciary service providers. It focuses on two aspects of plan service provider arrangements that can make the monitoring process especially challenging: fees and revenue sharing arrangements.

Source: Octoberthree.com, September 2015

How Revenue Sharing May Be the Real Victims of SCOTUS's Tibble v. Edison Ruling

Plan fiduciaries need to understand the amounts of payments that are being made from funds they select, who's paying them and who is receiving them. Some believe the unanimous decision just handed down by the Supreme Court in Tibble v. Edison could impact mutual fund selection by delivering a broadside to two mainstays of advisory cash flow: 12(b)-1 fees and revenue sharing.

Source: Riabiz.com, May 2015

The Use and Allocation of Revenue Sharing in 401k Plans

The DOL and 408(b)(2) treat revenue sharing payments as compensation to recordkeepers. If the total compensation from revenue sharing exceeds the reasonable cost of recordkeeping services, the plan sponsor has a fiduciary obligation to be aware of that and to recoup the excess compensation for the benefit of the participants. Reish reviews the issues.

Source: Fredreish.com, April 2015

12b-1 Fees/Revenue Sharing Add to 401k Plan Sponsor Fiduciary Liability Woes

The SEC is going after 12b-1 fees. The DOL is questioning revenue sharing. Jerry Schlichter and other class action attorneys are winning cases against plan sponsors on these payments. Could it be, after years of warnings, we are finally about to witness the fall of the house of 12b-1?

Source: Fiduciarynews.com, March 2015

ERISA Revenue Sharing Arrangements: Avoiding Plan Asset Status, Complying With Due Diligence Requirements

PowerPoint slides from presentation on ERISA Revenue Sharing Arrangements. Topics include: Brief Overview of Revenue Sharing Arrangements, When are Revenue Sharing Payments "Plan Assets," and Considerations for Revenue Sharing Payments that Constitute "Plan Assets."

Source: Wagnerlawgroup.com, March 2015

Edison Case Exposes Deceptive Practice of Revenue Sharing

The Supreme Court is slated to hear the Tibble v. Edison case in 2015, which promises to be a landmark ruling for the corporate retirement space. According to Brian Menickella, managing partner at The Beacon Group, "This case should serve as a wakeup call to plan sponsors. To fulfill their responsibilities and avoid penalties, employers need to make sure they are compliant."

Source: Benefitnews.com, December 2014

Are 401k Revenue-Sharing Deals on Their Way Out?

New disclosure rules and the threat of fiduciary violation lawsuits have helped bring down investment management, recordkeeping and other fees in 401k and other retirement accounts. Now revenue-sharing is following suit. About 13% of plans had no form of revenue sharing whatsoever last year, a figure that most expect will grow.

Source: Thinkadvisor.com, July 2014

Revenue Sharing is on the Decline in 401k Plans

Reports indicate revenue sharing has been declining over the last few years, both in terms of the percentage of plans including it and as a portion of the expense ratio. Fee disclosure requirements have likely played at least some part in this trend, but market forces have been more influential in reducing the incidence of revenue sharing.

Source: Employeefiduciary.com, July 2014

401k Plan Revenue Sharing Accounts -- Don't Choke on Your Piece of the Pie!

Revenue sharing with 401k service providers has been common practice for many years. It may sound like your service provider is offering "free money" when it offers to share part of its revenue sharing payments. But do not jump on the offer without taking the time to satisfy your fiduciary duties, which requires a careful consideration of how the arrangement works, the service provider's role, and the reasonableness of the service provider's compensation.

Source: Mckennalong.com, July 2014

Rethinking Revenue Sharing

While revenue sharing may be a legitimate way to pay for the costs of operating a plan, both US courts and the DOL have made it clear that plan sponsors have a significant responsibility as fiduciaries to fully understand, evaluate and monitor their revenue-sharing arrangements and determine whether they are reasonable. Therefore, the most prudent response for plan sponsors may be to rethink the practice of revenue sharing altogether.

Source: Alliancebernstein.com, June 2014

Coming to Grips With Excess Revenue Sharing

As plans mature and become larger, the problem of excess revenue sharing enters the picture. That's when the revenue sharing coming from fund providers exceeds the amount necessary to pay for the plan's expenses. And plan fiduciaries have to decide what to do with the excess revenue-sharing amounts -- how the plan will use that money.

Source: Alliancebernstein.com, June 2014

Allocation of Revenue Sharing; Advisory Opinion 2013-03A

In Advisory Opinion 2013-03A, the DOL was saying that it has not issued any guidance, and was not prepared to issue guidance, concerning the allocation of revenue sharing. That is a reminder that there isn't any explicit guidance on how to allocate revenue sharing. As a result, fiduciaries need to engage in a prudent process to make that decision.

Source: Fredreish.com, May 2014

The Equitable Allocation of Revenue Sharing to Participants

Revenue sharing has become a hot issue. That includes the selection of mutual funds that pay revenue sharing, its use for paying plan expenses, and the allocation of revenue sharing to participants. The focus on those issues is largely due to class action lawsuits against large plans and the insistence of the DOL on revenue sharing disclosure. This article discusses the legal issues and alternatives for allocating revenue sharing in participant-directed plans.

Source: Napa-Net.org, April 2014

For more information on plan fees and costs, go to our COLLECTED WISDOM™ on Plan Fees and Expenses.

To find more information fiduciary liability, go to our COLLECTED WISDOM™ on Fiduciary Responsibility and Liability Issues.

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