The Power of the PENsion: Count the Cost of Offering a Pension Plan

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Comprehensive analysis of your plan may show the cost to be well worth your employees’ benefit

What is the cost of providing a defined benefit pension plan? Beyond employer contributions, when determining costs, we consider custody, asset management, and consulting fees. These fees vary depending on the management of the plan and whether it is active or passive.

Active management employs professionals who actively buy and sell investments on behalf of the pension fund, with an intent of earning a better return than a given benchmark. Managers may also buy and sell to accomplish other pension plan goals involving risk parameters or other objectives.

Passive management involves investing as closely as possible to a given market index with an objective of matching the index return. Passively managed plans seek to meet an average return, while actively managed plans seek to exceed market returns.

In Highland’s experience and as an example, for a pension plan sponsor with $30 million in plan assets, an active plan would incur a total average annual cost of approximately 0.50% or $150,000. As expected, a passive plan has a lower average annual cost that is less than half that of an actively managed plan. Generally, active managers will have to outperform the benchmark index by more than their fees to add value to the plan.

With the fees outlined above, the relative cost of a pension plan (especially if its returns exceed its fees) may be regarded as minimal in light of the benefit it provides to employers as a tool to attract, retain, and reward talent. Furthermore, getting a good handle on all of these costs provides pension plan sponsors with valuable data for comparative analysis. This exercise typically entails a comprehensive benchmarking analysis, which Highland conducts on behalf of clients every year and more frequently when changes to the plan lineup, other service providers, or risk transfer activities occur.

There’s still power in the PENsion, and reasons to better understand the costs and rewards of providing a defined benefit plan to your employees. If you’d like to talk further about your pension plan and the fees associated with it, contact Mike Paolucci, or 440-808-1500.



Highland Consulting Associates, Inc. was founded in 1993 with the conviction that companies and individuals could be better served with integrity, impartiality, and stewardship. Today, Highland is 100% owned by a team of owner-associates galvanized around this promise: As your Investor Advocates®, we are Client First. Every Opportunity. Every Interaction.

Highland Consulting Associates, Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer of solicitation for the sale or purchase of specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.