The individuals responsible for the plan will need to first understand the fees. Here are some of the main types of fees that 401(k) providers commonly charge:●Recordkeeping and administrative fees: This is what the provider charges to keep track of participant accounts and process their transactions. These fees also typically include services to keep the retirement plan in compliance.
●Investment adviser fees: Some plans have an independent adviser select and monitor the plan’s investment options. These fees cover the adviser’s services.
●Expense ratio: This will usually be the largest component of plan fees. Most plans utilize mutual funds that will have expenses associated with them. Investment companies charge a fee to run the funds, and they generally take a certain percentage off the top. But built in to those fees can be other fees paid to third parties, arrangements loosely known as revenue sharing.
Many plan sponsors are unaware of the fees charged their employees. Many believe that their plan is free with no administrative costs to them. This will become clear when the new regulations become effective later this year.
Please comment or call to discuss how your plan compares to your peers.
- U.S. 401(k) Disclosure Is Coming-What To Do In January (401kplanadvisors.com)
- A Wake-Up Call & Fee Disclosures for 401(k) Plans (ritholtz.com)
- After Occupy Wall Street, Occupy 401(k)? (401kplanadvisors.com)