The 5 key areas of fees in 401(k) plans
Fees are an important part of retirement plans. So much so that the Department of Labor says plan sponsors (aka employers) must consider "reasonable fees" paid to service providers in light of the level and quality of services being provided. ERISA 403(c) and 404(a)(1) state that plan sponsors must "defray reasonable expenses of the plan."
So what are the main areas of fees in a 401(k) that need to be reviewed?
Custody Fees - Custody is referring to who is holding the plan assets? Custody fees can be charged per participant, a flat fee, a percentage of plan assets, or a combo thereof. It is common that custody fees are included in the recordkeeping fees.
Recordkeeping Fees- The recordkeeper is the 401(k) provider. Some may call this the "platform" fee. This fee can be charged per participant, a flat fee, a percentage of plan assets, or a combo thereof. The recordkeeper is the company providing the plan. Examples include Vanguard, Fidelity, Voya, Paychex, etcetera.
Advisor Fees- Many plan sponsors hire an outside advisor (aka Fiduciary) for expert advice and guidance. This fee is most commonly seen as a percentage of plan assets although some (like Mainstreet RIA LLC) charge a flat fee.
Administration Fees- Admin fees are for compliance testing and other administrative services on the plan. Think of these fees as "compliance fees". Sometimes this fee is automatically included in the recordkeeping fees which is then known as a "bundled plan". Others may choose not to bundle this fee in with recordkeeping and instead select an outside Third Party Administrator. These fees may be flat, per participant, or a percentage of plan assets.
Fund Fees- This is often the most confused fee in retirement plans. Fund's have an expense ratio that is the cost to be in the fund. Those funds are paid directly to the fund itself. Where it gets confusing is that sometimes there are fees added into a fund called "revenue sharing". The trend in the industry has been to get away from these revenue sharing fees which can quickly add up.
Please note there are other fees that a 401(k) may be charged but this is meant to cover some of larger expenses.
Finding all these specific fees may take a little digging. You may need to read the annual fee disclosure document or other service provider agreements to find the specifics.
At Mainstreet RIA LLC, we are available to help you navigate your documents and provide you with quotes from other providers so you can determine if your fees are reasonable for the services being provided.
Contact us at:
Mainstreet RIA LLC
1001 Boardwalk Springs Place, STE 111
O'Fallon MO, 63368
Advisory services are offered through Mainstreet RIA LLC, a SEC Registered Investment Advisor. This is not legal, financial, or tax advice. All information is general in nature and not specific to your retirement plan. For plansponsor use only. May not be copied or distributed without consent.