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Plan Investment Fees: Cheap Isn’t Always Best

Plan Investment Fees

Plan Investment Fees: Cheap Isn’t Always Best. “Price is what you pay, value is what you get.” Investing guru Warren Buffett coined this famous phrase, and it applies to a lot of things — including retirement plan investment fees. Just because a fund costs less doesn’t mean it’s the best option for participants.

According to a recent Mercer study, fees are a top priority for defined contribution (DC) plan sponsors in 2017. Cost-conscious sponsors may be tempted to spring for the lowest-cost option to save money all around. But fees are only one part of the equation.

Current regulations also mandate that sponsors make sure their plan’s investment offerings are suited to the unique needs and objectives of their participant population. In other words, the fees should be “reasonable,” but relative to the services the investor receives. And striking a balance between keeping fees low and making sure participants derive value from plan investments is paramount to helping them prepare for retirement.

That said, while getting a handle on plan investment costs can be challenging, it doesn’t have to create undue stress. Establishing a clear process that helps ensure you’re getting the most value for your plan dollars can mitigate a lot of unnecessary pressure and worry. In fact, the simpler, the better.

In a recent blog post, HartfordFunds advocated for a four-step process:

  1. Determine the plan’s fee policy and guidelines: Essentially, these are your plan’s “rules” for achieving that all-important balance between cost and value. It should answer questions like: What is the plan’s fee structure? How will you determine if the current investment offerings are in line with participants’ needs and goals? The answers to these questions will help drive how plan dollars are allocated for investment fees and expectations about what participants should get in return.
  2. Review opportunities for improvement: There’s always room to do better, and allowing for such opportunities should be part of a well-rounded investment fee policy.
  3. Put it in writing: Having a written policy puts all plan decision-makers and fiduciaries on the same page, literally and figuratively. Moreover, documentation is critical to supporting prudent fiduciary practices.
  4. Benchmark successes: Putting a fee policy in place doesn’t mean resting on your laurels. You’ll want to establish criteria for measuring success, and make adjustments as needed.

Your plan’s investment committee, made up of key decision-makers, should be involved in creating the fee policy. And if you work with a retirement plan advisor, don’t be shy about asking for their input, too.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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