Have you ever wondered how much in fees is being deducted from your 401k account?
There are several types of fees that can be deducted from your 401(k) account including the following:
Loan processing fees – a one time fee deducted for borrowing money from your account.
Loan maintenance fees – a periodic fee charged for the administering of a loan
Distribution processing fees – fees deducted from you taking a distribution out of your account
Investment management fees – fees deducted from your account for an advisor to assist you in directing your investments. This is usually an election that you must personally make, and you should be sure to check the expenses to be charged prior to accepting. You should also check to see that these fees are displayed on your account statement.
Other Plan expenses – sometimes your 401(k) Plan reserves the right to use your accounts earnings or your contributions to your account to offset
expenses such as – accounting/recordkeeping fees, compliance testing, and audit fees (See the blog “What Fees are being charged for your 401(k) Investment offerings” posted on December 2, 2010).
Investment fees – these are fees that are charged at the individual fund level.
Additional fund expenses – these are fees charged by the “custodian” or cash holder, or the entity tracking your investments, on top of the investment fees charged by the individual funds, that are being deducted from your accounts based on an agreement the custodian or recordkeeper has with your Plan Sponsor.
So, lets say you are a Plan administrator and your employee wants to know what fees are being charged to his/her account. You can provide another copy of the Summary Plan Description to the employee who can read what fees are generally applicable in your Plan. The specific Loan processing fee, loan maintenance fee and distribution processing fees should be disclosed to the participant at the time of the loan or distribution request. Investment management fees are usually disclosed at the time the individual elects the management advise election. Plan administration should be reviewing the accounts of participants with this election to ensure that the expense is reasonable, and should recalculate the expenses charged on a sample basis. As a plan administrator you should read and thoroughly understand what your Plan allows to be paid by participant’s earnings or contributions. As Plan administrator you should also be reviewing the investment fees charged by individual investments and ensure they are comparable to other 401(k) plans of your size. Finally, additional fund expenses should be recalculated based on the underlying contracts your Plan has in place with the custodian or recordkeeper. Plan expenses are a hot topic for the DOL, so be proactive and be sure you’re ready to answer any questions your participants may have.