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The Value of Reducing Rebates and Revenue Sharing in Your 401(k) Plan

March 10, 2017

Revenue sharing is the practice of using payments made by mutual fund and exchange traded fund companies to your retirement plan service providers, to pay for recordkeeping and other services.

Revenue sharing is commonly referred to in the retirement industry as rebates or kickbacks.

The Department of Labor (DOL) states that if your company is responsible for a 401(k) Plan, you must know the answers to the following:

  • What is the total dollar amount your plan generated in rebates in the past 12 months?
  • Do you understand what your service provider(s) do with these rebates?
  • Are these rebates returned to your retirement plan or are they retained by your service provider(s)?

Read the 2013 Department of Labor Advisory Opinion about Revenue Sharing 

Another solution and what many companies do not realize is that you can select certain share classes or investment vehicles that do NOT pay out revenue sharing or rebates at all.  Thus, avoiding having to account for, allocate and respond to employee and DOL questions about these kickbacks.  This is becoming a more desirable option as non-revenue-sharing fund classes are cheaper than share classes that do provide revenue sharing.

As an example, the Alliance Bernstein Large Cap Growth Fund is available at 2 different price points.  It is the same exact fund; however, Alliance Bernstein offers 2 different price points:

Fund Name Share Class Fund Expense 12b-1 Revenue Sharing/Rebates
AllianceBernstein Large Cap Growth APGYX A 156 bps 50 bps
AllianceBernstein Large Cap Growth ABPRX R 103 bps n/a

Selecting the lower cost fund will eliminate the additional work of reviewing, tracking, recording, and accounting for rebates. As you can see, the second option is 3 basis points cheaper.  By way of example, if $750,000 of plan assets are invested in the R share class, the result is a $250.00 savings to plan participants.  This may not seem like a significant sum of money but if each of the funds in your plan lineup generates this type of savings, the savings add up quickly and can be significant.


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