We have received a few inquiries about costs since the pilots are now being faced with stay or move decisions in reference to their DAP/401(k). The Board of Directors has always been sensitive to the level of Plan costs. We track all costs including management fees.
Since we use many mutual funds where investment manager fees are not negotiable, i.e., they are set by the fund family and taken out of fund performance, we do not pay much attention to the expense ratio of a fund except when we initially hire the manager. Ongoing, the manager has to meet or beat their assigned benchmark and this is usually a function of stock selection and not tweaking manager fees. the Board does monitor mutual fund manager fees once a year to insure no excessive changes.
We have always reported our annual cost of operating the Plans as a percent of Plan assets. Historically this expense number has been around one half of one percent. This includes investment management fees, which vary from fund to fund, plus our overall operating costs, which have varied from 20 to as little as 8 basis points (one basis point equals 1/100 of a percent) over the last eight years.
Our operating expenses for 2000 were approximately 8 basis points after adjusting for participant transfer and loan fees. This was for recordkeeping, bank fees, administration, office personnel, and communications. These costs are reported in the Summary Annual Report mailed to all participants in the fall of each year.
There have been some concerns that our costs would drastically increase with the movement of some participants out of the DAP and 401(k). I believe they will increases slightly but not to a significant degree. Our total fees and expenses in 2000 amounted to 51 basis points (about 1/2 of one percent). The 8 basis points of operating expenses as a percent of assets included in the 51 could go up slightly with a smaller asset base. If it happens we would still be running the Plan for around one half of one percent.
Here is an overview of our Plan Expenses:
| 2000 Expense Overview | |
| Total Assets (as of 12/31/00) | $ 1,641,032,607 |
Total Operating Expenses *
|
$ 1,298,722 |
| Operating Expenses* as a percent of assets | 8 basis points |
| Approximate Net** Investment Manager Fees*** | 34 basis points |
| Other Mutual Fund Expenses**** | 9 basis points |
| Total Plan Fees and Expenses as a percent of assets | 51 basis points |
* net of transfer fees
** mutual fund investment manager fee average
*** after administrative offsets
**** includes transaction fees, and all other asset-based costs incurred by the fund.
| DETAILS | ||
| Options | Expense Ratio | Morningstar Average |
| (Basis Points) | (Basis Points) | |
| Stable Value | 28 | n/a |
| Value Stock | 71 | 90 |
| Equity Index | 16 | n/a |
| Growth Stock | 73 | 115 |
| International Stock | 102 | 122 |
| Div. Small Co. Stock | 84 | 119 |
| Models | ||
| Conservative Portfolio | 34 | n/a |
| Moderate Portfolio | 52 | n/a |
| Aggressive Portfolio | 62> | n/a |
The participants invested in the Moderate Model Portfolio in 2000 paid 52 basis points in total expenses. There is no free lunch, but pilots should realize what a bargain the DAP continues to be for a viable low cost retirement plan with a great deal of flexibility.