By Greg Farrall, PPC®, CWS®, CPFA®
As a plan sponsor, you have a lot of responsibilities to your employees—they’re even outlined on your own page on the IRS’s website! When providing retirement and healthcare plans to your employees, you must act in their best interest, maintain their accounts, and make the smartest investment decisions to help them take care of themselves and their family. They’re relying on your integrity to help them build a solid financial foundation for their future (no pressure!), so it’s critical not to neglect one of the most important elements: plan fee review.
If you don’t take the proper measures to disclose your fees or ensure they’re competitive and reasonable, your plan offerings probably won’t seem as effective for your employees. As a sponsor, you should know that the higher your plan’s fees, the less your employees will have to contribute to their plans. This is why you should review your fees to make sure your employees can count on you to help them save for retirement.
How Often Should You Review Your Plan Fees?
Some say that reviewing your plan fees every two to three years is just fine, but I believe an annual review is the better move. Because lawsuits surrounding 401(k) and 403(b) plans have ramped up in recent years, it’s wise to take a proactive role in monitoring plan fees to ensure they can clearly show a prudent review process is followed.
As a plan sponsor, you should look over your plan fees on a periodic basis for a few reasons:
- You have a fiduciary responsibility to monitor plan fees and verify they are “reasonable.”
- If you have higher fees, be prepared with a good reason as to why you wouldn’t go with a less expensive alternative.
How Should You Review Plan Fees?
No two plan sponsors are exactly alike! To start your review of your plan fees, it’s best to look at what you currently charge your employees to maintain their retirement accounts. Although plans can have varying types of fees, the two most common are the investment and administrative fees.
The investment fee is one of the most significant retirement plan expenses, but there’s an upside. This fee is usually charged as a percentage of your employee’s assets invested, meaning that the fee is justified by how much money they have invested. Overall, this fee is what is paid to manage their investments in the 401(k) plan. This fee will vary based on the type of investment management approach (i.e., passive vs. active and domestic vs. international), but it is important to benchmark these fees to their appropriate peers.
The administrative fee is charged to pay service providers who ensure the plan is running smoothly. This includes paying recordkeepers, accountants, and legal services who can protect you as the sponsor and your employees. This can either be charged as a flat dollar amount, as a percentage against their total assets invested, or a combination of the two. Evaluating which fee approach to use for your plan is an important fiduciary decision and should be discussed and documented.
As the plan sponsor, it’s up to you to determine whether one or both of these fees are reasonable. Additionally, there are several online resources that can help you compare your plan, but you should always consult with a fiduciary consultant or advisor who understands your position as a plan sponsor. Speaking with a professional about your plan fees can offer a different perspective so you can better help your employees retire well.
Could You Benefit From Consulting With Us?
At Farrall Wealth, we provide institutional retirement plan consulting for 401(k), 403(b), and defined benefit plans. As valued consultants in the industry, we can help you build a sound strategy for reviewing your plan fees so you can drive positive results for your employees. Our goal is to provide confidence and clarity when it comes to your company’s benefit plans—it’s why we do what we do.
We use a comprehensive approach to manage the fiduciary risk to plan sponsors and their committees, as well as mitigate the risk of negative participant outcomes. Interested in speaking with an industry leader that keeps your best interests in mind? Call our office at 219-246-2516, email [email protected], or schedule a complimentary consultation online. Be sure to visit http://www.farrallwealthstewards.com/401-k-start-here.
About Greg
Greg Farrall is CEO and owner of Farrall Wealth, an independent, boutique wealth management firm that is dedicated to helping women and business owners create customized financial plans that allow them to grow, protect, preserve, and distribute their wealth. Greg is known for being a problem-solver who walks his clients through whatever life throws at them. He prioritizes building long-term relationships and is passionate about going the extra mile for his clients so they can pursue their goals and live the lives they want. Greg has a bachelor’s degree in international business from the University of Wollongong in Australia and a bachelor’s degree in finance and marketing from Indiana University Bloomington. He is a Professional Plan Consultant® (PPC®) and a Certified Wealth Strategist® (CWS®) professional. And he recently received his Certified Plan Fiduciary Advisor (CPFA®) designation. You can listen to him on his financial literacy and business topic podcast, Money Matters With Greg, on iTunes, Google, and Spotify. He’s also on YouTube, Twitter, and Facebook at @FarrallWealth.
Greg is a pillar of his community and served as the 2013-14 co-chair for the United Way campaign, through which he helped raise $1.8 million for 38 nonprofit organizations across Porter County, Indiana. He also served as president of the Valparaiso Rotary Club. Currently, he is on the advisory board for the Kelley School of Business and Dean of Students’ board at Indiana University. He also holds a position on the Culver Academies parents’ board.
When he is not working, you can find Greg spending time with his family or investing in one of his many passions, which include cooking, Spartan races, fly fishing, and meditation. To learn more about Greg, connect with him on LinkedIn.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
This information was developed as a general guide to educate plan sponsors, but is not intended to be authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does an advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
