@article {Goodman23, author = {Benjamin Goodman and David P. Richardson}, title = {Assessing Fee Fairness: Characteristics of an Effective Plan Fee Structure}, volume = {6}, number = {3}, pages = {23--33}, year = {2019}, doi = {10.3905/jor.2019.6.3.023}, publisher = {Institutional Investor Journals Umbrella}, abstract = {This article develops a four-part framework for assessing the effectiveness of a retirement plan administrative fee structure. An administrative fee structure should satisfy three efficiency standards: (1) adequacy, (2) transparency, (3) administrative. It should also satisfy (4) a fairness standard based on both horizontal equity{\textemdash}participants with similar levels of assets pay similar levels of fees{\textemdash}and vertical equity{\textemdash}participants with a higher level of assets pay at least the same proportion in fees as those with lower asset balances. Using administrative data from a large plan, we demonstrate that an administrative fee structure charging a flat pro rata fee can satisfy all four standards. By contrast, we show that a pure per capita administrative services fee can satisfy the three efficiency standards but will fail the fairness standard. Indeed, our plan analysis shows that a flat per capita fee is highly regressive, with the lowest-asset participants paying equivalent pro rata fees that may be thousands of times larger than the highest-asset participants. A hybrid fee structure that uses a combination of per capita fees and pro rata fees, or capitates total fees paid by any individual, can reduce the unfairness of a pure per capita fee but will also weaken the efficiency standards because it is more complex to understand and administer.TOPICS: Retirement, portfolio management/multi-asset allocation, legal/regulatory/public policy}, issn = {2326-6899}, URL = {https://jor.pm-research.com/content/6/3/23}, eprint = {https://jor.pm-research.com/content/6/3/23.full.pdf}, journal = {The Journal of Retirement} }