As the Plan Sponsor of a 401(k) Plan, it is your responsibility to ensure you are not charging or requiring your participants to pay unreasonable fees as part of Plan administration. It may not be as easy as you think to evaluate this. You cannot simply look at an invoice or set of Plan financial statements to see the picture. It also may be difficult to compare the fees charged within one Plan compared to another.
We recommend first that you look at the participant fee disclosure. These disclosures were required to be prepared and distributed to all Plan participants beginning 2012. If you do not have a copy handy, ask your service provider. This document is required to be updated each year so make sure you have the most current copy available. Look for verbiage such as asset-based fees, total operating expenses as a percentage, and expense ratios. These amounts should be consistent across plans and will allow you to compare your Plan to others.
Fees labeled 12b-1 fees are fees charged to pay for intermediaries that sell plans to the employer. These fees are capped at .75% of assets, but over time this amount can really add up to a big hit to Plan returns. These fees are separate from investment management fees, which are charged by the 401(k) provider. The annual fee charged by the average 401(k) Plan, according to the Center for American Progress as of May 17, 2020, was 1%. Although that isn’t a large percentage, imagine taking 1% of your paycheck away each pay period. In essence, that is what is occurring to your participant’s retirement fund.
We recommend Plan Sponsors carefully consider the fees charged and relate the fees to the service the Plan is receiving for those charges. Also, compare them to other available options to ensure they are providing the best Plan alternative they can to their employees.
Do you need an audit for your 401(k) Plan? Consider a specialized firm like Summit CPA Group. We can provide a quality benefit plan audit that is efficient and accurate. If you would like to discuss our audit process in more detail contact our office at (866) 497-9761. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete.