401k Plan Fees can be an Asset for Your Plan Participants if Properly Managed
401k plan fees are top of mind for every Plan Fiduciary and Retirement Committee Members. Many individuals and organizations are focusing on the value received for the 401k plan fees that are being paid. In our series of the 10 Biggest Mistakes identified by retirement plan advisors, the # 1 Mistake is not monitoring 401k plan fees.
Colin Clark, Adjunct Lecturer for The Plan Sponsor University (TPSU) and Ms. Jewel Lim Esposito, ERISA Attorney, discuss the # 1 Mistake – Not monitoring 401k plan fees. A prudent process of fiduciary oversight will include a solid process for monitoring 403b and 401k plan fees.
Full Transcript Here
Hi, this is Colin Clark. I’m a retirement planning consultant with the Washington Financial Group and I’m here in our offices with Jewell Lim Esposito my good friend who is a partner with FisherBroyles who’s a nationally renowned speaker and ERISA legal strategist. I want to know if it’s okay if we ask you a few questions today as part of our series, the 10 biggest mistakes that 401k and 403b plan sponsors make.
Sure, Colin. That’d be great.
Awesome, so this is our last question. Really, what we want to talk about today is, you know, plan sponsors regularly fail to evaluate the expenses of running their plan. So, what expenses should plan sponsors be evaluating?
There are many expenses but three key ones are the cost of the record keeper, the cost of the investments inside of the plan, and then the advisor expenses. Now, you should note, Colin, that any expense that’s paid directly by the employer for the plan is okay, but it’s when plan assets are used to pay those expenses.
So why is that important?
It’s important because ERISA requires that the fees paid by a plan and directed by the fiduciary be only reasonable and necessary fees. They don’t have to be the cheapest and they don’t have to be the most expensive, but it’s essentially what is the value the plan sponsor is getting for the fee charged.
What should plan sponsors be doing to make sure they’re doing the right thing?
Well, the best tool for a plan sponsor is the measurement of performance. One place where they can see the measurement of performance is to check a schedule that we like to call the 408b2 schedule. On it are the list of expenses that the plan is charged. If the plan sponsor doesn’t know how to evaluate those expenses then they should talk to their broker or consultant to analyze the expenses the plan is paying.
Is it pretty easy to find that plan sponsor fee disclosure?
Well, the plan sponsor should ask the vendors with whom it works for their fees and typically they’ll prepare that into a chart that’s required under ERISA. It’s a chart that will go to the fiduciaries and then the plan participants are also able to see the fees associated with the plan.
So those fees are gonna be anything from the cost of investments to the costs of the record keeper. Are advisor fees included in that as well?
Advisor fees are also on that schedule and then what’s interesting is for example if a plan has to pay fees for over seven years on a certain type of investment is that reasonable? That’s something that the fiduciaries have to determine.
Thank you, Jewell. This is Colin Clark signing off for 401k TV. Thanks for watching our series on the 10 biggest mistakes 401k and 403b plan sponsors make according to advisors.