By 401(k) plans are not made for free, but because of 404(a)(5) and 408(b)(2) regulations, fees are needed to release and start to appear on quarterly statements. In past, fees were included in the result of net investments, however, were not visible. Whenever an employee opens his/her quarterly statement, he/she comes to know that the fees are being paid by charged plan to their account which is mentioned as a percentage of their dollar account and total account balance.
The firm or offices that is responsible for 401(k) program is required to be prepared to detail the fee disclosure regulation for 404(a)(5) and 408(b)(2) to their employees and other stakeholders that nothing has changed actually. To do this, the individuals who are responsible for the plan are required to understand the fees first. Below are few types of fees that 401(k) providers charged commonly.
Administration and Record Keeping Fee
The fees generally include services of keeping the retirement plan in compliance and to keep the record of participant accounts and for the processing of their transactions.
Fees for Investment Advisory
Some of these plans have an independent adviser to select and monitor the investment options of the plans. These fees cover the services of adviser.
Expense Ratio
Almost all plans use mutual funds which will have expenses that are associated with them. A fee is charged by investment companies to run the funds at the cost of certain percentage off the top. Included in those fees can be arrangements called revenue sharing, third party fees and the like. This is generally being the largest part of the plan fees.
For the concern of the executives for their employees responses to this new fees, best is to be offensive rather defensive and to prove employees that company is doing this in diligence to analyze its plan fees and determining that they are justifiable.
It is significant for sponsors to match their fees with plans and firms that are similar. For this, these options are worth to consider. Place your plan for request for proposal and get quotes from multiple service providers. By this you can have good pricing options but be careful to choose one that offers significant response time that may charge few extra bucks. Engage a consultant that offers independent benchmarking for fees as compared to the same type of retirement plans.
