Key takeaways:
- SPS uses an asset-based fee for 3(38) Investment Management Services, with a stated minimum and annual cap.
- The fee covers ongoing discretionary management of the plan’s investment lineup.
- Other retirement plan costs are separate from the SPS investment management fee.
- SPS does not charge a cancellation fee and requires 30 days’ notice, subject to the applicable agreement.
Choosing a retirement plan is one of the biggest benefits decisions a small business makes. The right plan should support employees’ long-term financial goals while fitting the organization’s budget and administrative capacity.
Why 3(38) fiduciary fees are not always straightforward to compare
Retirement plan sponsors may encounter advisory firms that offer both 3(21) investment advisory services and 3(38) investment management services. A 3(21) investment adviser provides guidance, while the plan sponsor retains final responsibility for investment decisions. A 3(38) investment manager has discretion to select, monitor and replace investment options within the terms of the agreement.
Because the level of responsibility is different, the services and fees are not directly interchangeable. Pricing can also vary by provider. Some use asset-based fees, flat fees, per-participant charges, minimum annual fees or combinations of these approaches.
For a more detailed explanation of 3(38) fiduciary investment management services, see Fiduciary Investment Management Services and What They Mean.
How much does Strategic Plan Services charge for 3(38) investment management?
The asset-based fee
SPS generally charges an annual fee equal to 0.10% of eligible plan assets, also expressed as 10 basis points. One basis point equals 0.01%, so 10 basis points equal 0.10%, or $1 for every $1,000 in eligible plan assets.
For example, before applying the minimum or maximum fee, 0.10% of $1 million in eligible plan assets equals $1,000 annually.
Minimum and maximum fees
The SPS pricing structure includes:
- Minimum: $30 per month, or $360 annually
- Maximum: $25,000 annually
- Fee cap: The fee cap is reached when eligible plan assets total $25 million or more under the stated 0.10% pricing structure
The applicable investment management agreement governs the actual fee and terms for each plan.
What could the SPS 3(38) fiduciary cost look like for plans of different sizes?
| Eligible plan assets | 0.10% calculation | Illustrative annual SPS fee |
|---|---|---|
| $250,000 | $250 | $360 minimum |
| $500,000 | $500 | $500 |
| $1 million | $1,000 | $1,000 |
| $5 million | $5,000 | $5,000 |
| $25 million | $25,000 | $25,000 |
| $50 million | $50,000 | $25,000 maximum |
These examples assume a full year of service and the pricing structure described above. Actual fees are governed by the client’s investment management agreement.
What does the Strategic Plan Services 3(38) fee cover?
The SPS fee covers ongoing fiduciary investment management, including selecting, monitoring and replacing investment options.
| Service area | What SPS does |
|---|---|
| Investment lineup management | Selects, monitors and replaces investment options |
| Investment evaluation | Reviews performance, expenses, risk and other quantitative and qualitative factors |
| Fiduciary responsibility | Accepts discretion for investment decisions under a written agreement |
| Ongoing oversight | Applies an ongoing investment review process |
Selecting and maintaining the investment lineup
Under a 3(38) arrangement, SPS has discretion to select and, when appropriate, replace investment options within the terms of the investment management agreement. SPS accepts fiduciary responsibility in writing for those investment decisions.
The plan sponsor therefore does not have to review and approve each covered investment decision individually.
Ongoing investment monitoring
SPS monitors the plan’s investment options on an ongoing basis to determine whether they continue to meet its investment criteria. Evaluation may include:
- Investment performance over appropriate periods
- Performance compared with peers and benchmarks
- Fees and expenses
- Investment strategy
- Risk and historical volatility
- Qualitative information about the fund and its management
Investment managers may also have access to information that individual plan sponsors do not readily have, including direct discussions with fund managers.
Access to certain investment options
SPS’s scale may also provide access to certain mutual fund share classes or Collective Investment Trusts (CITs) that an individual plan might not otherwise be able to access.
What responsibilities remain with the plan sponsor?
Hiring a 3(38) investment manager does not transfer every fiduciary responsibility associated with the retirement plan.
The plan sponsor remains responsible for prudently selecting SPS and monitoring whether SPS performs the responsibilities described in the investment management agreement. Responsibilities outside the scope of that agreement also remain with the plan sponsor. SPS will provide the plan sponsor with quarterly reports detailing fund performance and any monitoring statuses placed on the investment options by the SPS Investment Committee. Additionally, plan sponsors and participants will be notified of any changes made to the investment lineup by SPS.
What costs are separate from the SPS fee?
The SPS investment management fee is not the total cost of operating a retirement plan.
Other costs may include:
- ADP Retirement Services recordkeeping fees
- Investment expense ratios
- Participant-level expenses
- Administrative or compliance services
- Other plan-related fees
Investment expenses may affect participant accounts even though they are not part of the SPS investment management fee. When evaluating reasonable 401(k) fees, plan sponsors should consider the full cost of the plan and review their service agreements and fee disclosures.
Does Strategic Plan Services charge a cancellation fee?
SPS does not charge a cancellation fee. SPS requires 30 days’ notice. The applicable investment management agreement governs the specific termination terms.
Is a lower 3(38) fee always the better value?
Price is one factor in evaluating an investment manager. Plan sponsors should also consider:
- The fiduciary responsibilities the provider accepts in writing
- How investments are selected, monitored and replaced
- The breadth and quality of the investment lineup
- Reporting and plan sponsor support
- Experience serving similar retirement plans
- Minimum fees, caps and other contract terms
Plan fiduciaries should evaluate whether fees are reasonable in relation to the services provided rather than selecting a provider based only on the lowest stated price.
Why SPS may be relevant for smaller plans
Leaders at small businesses may not have the time, investment knowledge or desire to manage the ongoing responsibilities of selecting and monitoring a retirement plan’s investment lineup.
Smaller employers may also receive limited attention from traditional investment advisers because their overall plan assets are lower. Many SPS clients are small-business plan sponsors, so SPS is familiar with the investment oversight challenges smaller employers may face.
SPS gives these plan sponsors access to ongoing 3(38) investment management through a straightforward asset-based fee structure.
Could Strategic Plan Services be a fit for your plan?
| Ask yourself | How SPS may help |
|---|---|
| Does our plan use ADP Retirement Services for recordkeeping? | SPS works with plans that use ADP Retirement Services as recordkeeper. |
| Do we have the time and investment knowledge to oversee the lineup internally? | SPS provides ongoing investment management and monitoring. |
| Do we want to delegate investment decisions? | SPS can assume discretion for selecting, monitoring and replacing investment options under a 3(38) agreement. |
| Do we want clarity about which investment responsibilities we are delegating and which we retain? | The investment management agreement defines SPS’s role and the responsibilities that remain with the plan sponsor. |
| Are we prepared to continue monitoring the service provider? | The plan sponsor remains responsible for prudently selecting and monitoring SPS. |
A business does not need to use ADP payroll to work with SPS. Its retirement plan must use ADP Retirement Services for recordkeeping.
If your organization wants to delegate investment selection, monitoring and replacement to a 3(38) investment manager, SPS may help reduce the investment oversight your team manages directly.
Connect with an ADP Strategic Plan Services specialist to discuss your plan, applicable fees and available service options.
FAQs
How are SPS 3(38) fees calculated?
SPS generally charges 0.10%, or 10 basis points, of eligible plan assets annually. The fee is subject to a minimum of $30 per month and a maximum of $25,000 annually. The applicable investment management agreement governs the actual fee.
What does 10 basis points mean?
One basis point equals 0.01%. Ten basis points equal 0.10%, or $1 for every $1,000 in eligible plan assets.
Does SPS charge a cancellation fee?
No. SPS does not charge a cancellation fee and requires 30 days’ notice. The applicable investment management agreement governs termination terms.
Does a company need to use ADP payroll to work with SPS?
No. ADP payroll is not required. The company’s retirement plan must use ADP Retirement Services for recordkeeping.
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