Are You Paying Too Much in Retirement Plan Fees?

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As a business owner, you want to keep and attract the best people for your company. One way to do this is to offer your employees a quality retirement plan. But how do you determine what retirement plan to go with? And as the fiduciary for that plan, how do you know you and your employees are paying reasonable fees and expenses relative to the value received from the plan?

According to the U.S. Department of Labor’s Employee Retirement Income Security Act (ERISA), you are responsible as your company’s fiduciary to act prudently and solely in the interest of your employees and their beneficiaries when managing a plan. This includes ensuring that service provider fees are “reasonable.” In order to do this, you must evaluate all the information in the plan regarding fees to make sure you are not overpaying for the services you are getting.

It’s not only required, but it’s financially wise, since plan fees vary, and any money paid in fees is money that’s not being invested toward retirement, shrinking both you and your employees’ nest eggs.

Figuring Out Fees

While plans require full disclosure of fees, it’s not as simple as evaluating a single line item. It’s far more complicated, and requires due diligence on your part.

Qualified retirement plan fees charged to participants generally fall into three categories:

1. Plan Administration Fees

These are the fees charged for the day-to-day operation of the plan, such as accounting, administrative and legal services, but can also include additional services such as phone and online support services, retirement planning advice and more. The more services provided by the plan, the higher the administrative fees. The administration fees can be paid by you, your participants, or both, either as a flat fee, or deducted from the returns of the plan.

2. Investment Fees

This is the largest component in total fees, and is deducted from employee investment returns. They are usually a percentage of the total assets invested by a participant.

3. Individual Service Fees

These fees are associated with additional plan offerings, such as for taking out a loan against investments. The individual participants in the plan pay them.

Qualified retirement plan charged to the fiduciary of the plan fall into the follow three categories:

1. Sales Charges

This is the cost of the transactions involved in buying or selling shares in the plan.

2. Management Fees

Usually these fees are disclosed as a percentage of the assets that are being managed. The cost of management fees can vary depending on the level of management required for a given plan.

3. Other Fees

These can include any other fees that are part of the overall management of the fund.

As you’ve probably guessed by now, figuring out exactly what you are paying in fees and expenses is not a simple undertaking. In addition, although it is required that all fees charged are “reasonable” under the law, the definition of “reasonable” can vary according to the level of services provided, and doesn’t at all mean you are getting the best return on your investment in a plan for your company.

Richard Brothers can help you ensure that your employees are getting the best-qualified retirement plan for their investment, increasing the amount of participation and reducing overall costs for you. We carefully monitor your plan’s performance and recommend strategies for optimizing your plan. Our multi-tiered Peak Plan Optimization process includes:

An upfront statement of our investment policy criteria
Disciplined adherence to these standards, using a watch list, formal reviews and removal recommendations
Reviewing fund choices for style or management changes
Comparing plan performance and fund expenses to other plans in your peer group