Cerulli’s latest research, contained in the second quarter of 2007 issue of The Cerulli Edge, addresses the Fees and Profitability issue by examining fees and best practices in the 401(k) and 403(b) industries and the impact of what they call ‘hefty and inconsistent’ pricing of GMWBs in the annuities industry.
Their findings show that more than one-third of plan sponsors are unaware of the administrative costs involved in their plan. Cerulli analysts believe that in addition to fee transparency, however, the industry would be served greatly by better benchmarking of both fees and service levels.
Providers indicate that the 403(b) market is just as profitable as, if not more profitable than, other defined contribution(DC) markets. Of providers surveyed by Cerulli, 43 percent report that their profit margins on the 403(b) side were greater than the profit margins of other DC businesses.
They also found that Guaranteed withdrawal benefits have taken the insurance industry by storm. Yet these benefits can come at a steep cost, which can significantly impact the account value over time. To illustrate this impact Cerulli analysts computed several scenarios to compare accumulated value both with and without the guaranteed withdrawal benefits.