How Much Are Your Retirement Plan Fees Really Costing You?

As the plan sponsor, it’s your fiduciary responsibility to make informed decisions about your retirement plan. And part of those decisions includes finding retirement plans that fit your budget and that are in the best interest of your employees.

Unfortunately, many retirement plan providers make it extremely difficult to identify exactly how much you’re paying and what you’re paying for (often referred to as hidden retirement plan fees).

And while the U.S. Department of Labor requires retirement plan providers to disclose all fees, many plan costs are still difficult to find if you don’t know what you’re looking for and how to ask the right questions.

What does the average retirement plan cost?

The average expense ratio of a retirement plan ranges anywhere from 0.5% to 2% and will vary depending on the amount of money in the plan, the number of participants, and the specific plan provider. Other factors that determine plan costs are the specific fund fees and the level of service that is chosen to manage these funds.

Most plans include a one-time fee to establish your plan, and ongoing charges for administrative services and individual investments. But with complex fee structures and a variety of plan options, it’s difficult to determine a set fee for all retirement plans. Your fees will vary depending on how your plan is set up.

Let’s take a deeper look into some of these retirement plan expenses:

Retirement Plan Start-Up Expenses:

Generally, plan provider one-time fees are divided into one of the following categories (or a combination of some of them):

Asset based: The amount of assets in your plan determines how much you’ll be paying. This expense will be represented as a percentage or a basis point.

Participant based: Your costs are determined by the number of participants in your plan.

Transaction based: Your costs are determined by retirement-related services or transactions.

Flat rate: This is a fixed cost, no matter what type of plan you have.

Retirement Plan On-going Fees:

Along with the one-time plan fee, there are also ongoing (monthly or annual) charges. These fees generally fall into four categories:

Administrative fees: These expenses cover the costs of the daily operations it takes to maintain the plan. These fees include anything from plan recordkeeping, customer service support, reporting, and compliance testing.

Keep in mind that some administrative fees are covered by the investment fees and are deducted from the investment returns.

Investment fees: Investment fees are generally paid by the participants. Unfortunately, many participants are unaware of these fees with 73% of American saying they have no idea what their investment fees cost. These fees make sure the investments are managed well. But it’s important to understand what you’re paying so that you can gain value from your investments instead of paying high fees that cut into your returns.

Some common investment fees are management, distribution, and service fees. These fees show up as expense ratios and are charged as a percentage of your total account balance. So, if you have an expense ratio of 1% and $1,000 in your account, you’ll be paying $10 annually for that specific fee.

If you feel like you’re paying too much for individual funds in your retirement plan, take a look at your other fund options and choose a similar one with a lower expense ratio.

Some financial advisor services are also tacked onto this fee. Pay close attention to these fees. They are deducted directly from your investment returns and can be easy to miss.

Individual service fees: In addition to administrative fees, providers will often charge individual service fees associated with one-off services like processing loans or distributing funds. These fees are charged directly to the participant and cover the extra services that said participant chose to partake in.

How do you know if you’re paying too much in retirement plan fees?

Begin by looking over your retirement plan’s Summary Plan Description. This guide details how your plan operates and may give you an overview of your fees and expenses for you and your participants.

If you have an ERISA retirement plan, you can request that your plan provider fills out a 401K Plan Fee Disclosure Form. This is a helpful tool provided by the Department of Labor that includes a list of all possible plan costs.

It’s critical that you know the details about your retirement plan in order to evaluate your plan fees and benchmark them against other retirement plan provider fees.

If you want to know more about your retirement plan fees, start by answering these questions. If you don’t know the answers to these questions, ask your plan administrator to help you or go directly to your plan provider.

  • What investment options does your plan provide?
  • What fees are associated with these investment options?
  • What other investment services are available under your plan?
  • Are administrative fees paid separately from your investment management fees, and if so, are they paid by the plan provider or the employer?
  • What other fees do your plan investments charge?

Do your homework

Bottom line – do your homework. All retirement plans cost money, but if you’re not educated on the specific fees within your retirement plan, you may be paying too much.

Look at the overall value of your plan. Is your retirement plan provider upfront with their fees and services? And are they putting the needs of your participants first?

How we handle fees at TruthPoint Financial

At TruthPoint Financial, we saw a problem surrounding fees and retirement plan services. Most large retirement plan providers don’t have high fees, but they aren’t personal and don’t understand the unique needs of non-profits and faith-based organizations.

And the smaller retirement plan providers that do provide services for those unique needs charge way too much.

At TruthPoint Financial, we saw a need for a retirement plan that cares about your staff and provides low fees. That’s why we made it our mission to serve faith-based and non-profit organizations by providing unique, cost-effective plans.

We pride ourselves on providing retirement plans that are built on truth, transparency, and trust. That means we disclose all retirement plan fees, and we make decisions that we truly believe will benefit our plan sponsors and their participants.

Interested in learning more? Schedule a call today.

Are you searching for a new retirement plan provider or advisor? How do you know which one is best for the needs of your organization?

We’ve put together 6 red flags that you should be aware of when looking for a retirement plan provider. You’ll receive a new email every day that will give you common provider red flags you should stay clear of so you can make the best decision for your organization.

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Investment Advisory services offered through TruthPoint Financial, LLC, a Registered Investment Adviser with the State of Colorado

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