By Alvin Wolcott, CPA

What does going to the emergency room and your 401K plan have in common?  Most of us have no idea what they cost! 

Employees/Participants:

New fee disclosure has begun; check your recent 401K statement for this additional information.  Do you know what you pay for your share of the 401K plan’s expenses? 

It can be difficult to identify all of the expenses and some are likely paid by your employer and plan sponsor.  However, you are undoubtedly paying the investment expenses in the fund you have chosen to invest, so pay close attention to the cost of each investment.  Selecting funds with low expenses is a great way to improve your return on investment.  If all of your fund expenses seem high, talk to your plan sponsor and remind them that they have a great opportunity to benchmark the plan fees against other similar plans.

If you work for a smaller company, your fees may be higher as there are fewer employees and fewer assets in the plan to help cover the costs.   Some fees may be hidden; here are a few common ones:

  • Administrative Expenses
  • Brokerage Fees
  • Investment Advisory Fees
  • Management Fees
  • Marketing Fees
  • Transaction Costs

Even if all of these costs are relatively low they can still add up, especially if your employer does not chip in.  If all of the fees added together exceed 1%-1.5% you may be paying too much.

Business Owners/Plan Sponsors:

If you are an employer, what can you do to make sure your plan is operating at optimum performance?  Employers can use the new increased transparency to reduce plan costs.  If you haven’t benchmarked your plan recently, consider hiring a retirement plan specialist to compare your plan to the plans of similar sized businesses to ensure cost and performance is competitive.  This may help provide defense against charges from disgruntled employees complaints. 

One area of exposure for plan providers is the selection of investments.  You or your investment advisor should review the following items on a periodic basis:

  • Measure the benchmark investment performance of each fund included in the plan against fund peers.
  • Benchmark plan fees and features to similar sized businesses.

Hiring an investment advisor may prove beneficial if you don't have the necessary time or expertise.

We recommend consulting an independent fee only investment advisory firm fluent in the intricacy of 401K plan providers; please contact our firm if you need assistance.