A Group retirement plan provides plan members with many advantages when compared to a Retail retirement plan. The largest advantage to a group retirement plan is that the Investment Management Fees (IMF) members pay are typically much lower than Retail fees which are calculated by the Management Expense Ratio (MER’s). Group program pricing is determined by aggregate plan members and assets. The more money in the plan, the lower the IMFs. Retail products generally have fixed pricing.
Group retirement plans also offer access to different retail and institutional fund managers that are not available from a traditional Retail plan. On average, nearly 70% of the funds available through an insurance provider are managed by external portfolio managers whereas Retail retirement products offer only their internal portfolio managers. Our analysis of historical returns shows a clear advantage to the Group retirement providers largely due to access to specialized fund managers with specific focus on the asset class they operate in. Additionally, the fund lineup for a Group plan is customized, which allows the plan sponsor to include fund choices based upon a best in class evaluation. A custom fund lineup creates a better environment for members to make an active choice as it helps to avoid overwhelming members with a large list of funds.
The following chart breaks down the key differences between Group Retirement Plans and Retail Retirement Plans:
|Group Retirement Plan||Retail Retirement Plan|
|Minimum Balance Required||No||Yes|
|Customizable Fund Lineup||Yes||No|
|Fund Managers||70% external 30% internal||20% external 80% internal|
|Enrollment||Through employer/online||Often through bank branch|
|Fund Manager Review||Qualitative and qualitative|
done semi annually
|No external review process|
|Sales Calls on Additional Products||No||Yes|
Funds invested through a Group plan have significantly lower costs than Retail plans. The below chart illustrates the impact of lower Investment Management Fees (IMF) on members’ retirement savings1.
|Total Account Value After Fees||Additional Retirement Income|
|2.5% – Average Retail Fee||1.5% – Average Group Retirement Fee|
1 Based on 5.75% estimated annualized rate return and $4000 yearly investment by the member
The Leslie Group monitors trends in the group retirement and retail markets and can assist you in designing the plan that is most appropriate for you and your members from both a costs and services point of view. The Leslie Group can be reached at (416) 510- 8966.