Remember your company sponsored retirement plan is the sole source of retirement for your employees and yourself. If you nor your staff have the time to manage the plan, please outsource to an independent fiduciary. If business owners do not provide an efficient plan the federal government will.
- Educate yourself. Do you understand all of the different types of fees 401(k) plans have, including investment costs, trustee or custodial expenses, transactions costs such as commissions and administrative and record-keeping fees?
- Compare your plan. Do you know the average 401(k) plan expense for plans of your size, and have you used an independent benchmarking service to evaluate your current vendor fees? (Best practice here is not to rely on services recommended by your current vendor.) If you can’t answer “yes” to both questions, how will you be able to respond to questions asking why the plan is so expensive?
- Review your investment line up. When was the last time you reviewed the plan’s investment lineup for performance relative to fees, and do you change the lineup when better options become available? This would be a good time to do so if you haven’t looked at your investment lineup recently. Also be prepared to explain that it is appropriate to pay more for better service, such as better than average investment performance. Ask a registered investment advisor who will acknowledge being an ERISA fiduciary for expert help.
- Don’t Limit Your Menu to Retail Funds. Do you have index funds and institutional class shares in your lineup to lower investment costs? Have you asked that any minimum investment requirements for institutional share funds be waived?
- Examine revenue sharing arrangements with a critical eye. Do you understand that expenses paid through revenue sharing are actually being paid by the participants? Have you picked the best investments for them, not the funds that pay the most revenue sharing and therefore limit your plan sponsor responsibility for fees?
- Check out new vendors. Have you done an RFP recently to see whether better alternatives are available? You may love your current vendor, but an even better, cheaper alternative may be available. (And you might be able to use the RFP to renegotiate your current fees without actually switching to a new record-keeper.)
Plan participants will begin asking questions about their retirement plan which they thought was free. What will your answers be?
Please comment or call to discuss how this affects you and your employees.