A 401(k) plan isn’t something you just set and forget. Unless your plan sponsor and trustees carefully review the plan fees each year, the costs tend to grow until they’re far too high compared to the level of service you’re receiving.
High plan costs have a negative impact on individual participants. Many of these costs are borne by the individual account holders, and could affect their ability to save enough for retirement.
While overspending on a 401(k) plan isn’t likely to bring down a company, it may indicate underlying compliance problems, especially with the new fiduciary rules from the Department of Labor (DOL).
How Do You Know Whether You’re Spending Too Much?
There are several moving parts in a retirement benefits plan. To determine whether you’re overspending on your 401(k) plan, you need to break down the costs — including record keeping, financial advisory, investment and administrative costs — until you clearly understand all fees associated with your plan. These charges must be broken out separately for an effective evaluation.
Here are three sources to contact to gain a better understanding of your fee structure:
Once you have a clear picture of your costs, you’re ready to compare your current plan against similar-size plans in your industry.
Fees alone shouldn’t be the deciding factor when you’re comparing different retirement benefits options. The value you are receiving overall is most important, and the fees should be proportional to the level of service you require.
How A Company Assessed The Cost Of Its $10 Million Plan
A company decided it was time to assess the fees on its 401(k) plan, which had 150 participants and over $10 million in assets. After carefully reviewing all of the relevant documents, the plan administrator still didn’t have a clear picture of the fee breakdown.
This lack of clarity stemmed from the company using its payroll service provider to also administer the 401(k) plan, and the plan fees were part of a total package of services. While this type of arrangement isn’t uncommon, it may present a conflict of interest and could create problems for complying with DOL fee disclosure guidelines. Another problem was that the plan lacked a formal enrollment process with ongoing participant education.
The company decided to ask other plan providers and advisors for proposals, and ultimately chose a solution in which the fees were clearly broken down for the services provided. These services included the employee education and enrollment support that the previous plan lacked. The new 401(k) plan also incorporated a sliding fee schedule, in which the fees changed as the plan’s total assets increased over time.
In the end, remember that the plan fees should reflect the value you receive from your 401(k) plan. Simply choosing the option with the lowest fees may not be such a bargain after you assess what it actually offers.
Concerned that you’re overspending with your current 401(k) plan? Request a free, 30-minute consultation with Richard Brothers and start maximizing your plan’s value.
