Improving the quality of retirement plans to their employees can reduce anxiety and improve results. This employee benefit is becoming more and more important as the number of defined benefit plans decrease. Just today GM announced it would freeze pension benefits for their salaried staff.
Look to pay 1% or less for all-in participant feesSmall and mid-size businesses have historically been subjected to the most confusing and, unbeknownst to most, the highest-cost plans. Many providers have designed their plans so that employers pay a small administration fee while their employees pay large participant fees that go well beyond general fund expenses and typical asset management and recordkeeping services. They often include extra loads, wrap fees, 12b-1 fees, and often consist of high expense actively-managed mutual funds or even annuities versus lower expense equivalent fund options. This can mean employees are paying two or even three percent in all-in fees – an amount that’s two to three times more than an appropriately priced plan.
All-in participant fees including fund expenses should come in at one percent or less. Just paying one percent more in fees can cost employees tens if not hundreds of thousands of dollars in retirement savings over their career.
Plan sponsors will realize added responsibility when the new fee disclosure rules become effective later this year. Many employees will begin asking why they are paying such high fees. This will result in greater scrutiny and should help plan sponsors provide a true employee benefit.
Please comment or call to discuss how this affects you and your company.
- The Small Business 401(k) is the Holiday Gift That Keeps on Giving (401kplanadvisors.com)
- Lifting the Lid on 401(k) Fees (401kplanadvisors.com)
- New 401(k) Revenue Sharing and Fee Disclosures Could Re-Shape DC Plans (401kplanadvisors.com)