Are you considered a Fiduciary for your Company’s 401(k) plan? Are you a participant in your Company’s 401(k) plan and looking to get answers on what the different fees are that you are paying to be a participant? If you answered yes to either of these questions, read on for explanations on a variety of plan fees and expenses that you should understand.
Generally, plan fees and expenses will fall into three categories of fees. These include plan administration fees, investment fees, and individual service fees. Each of these fees vary by what services you are being charged for and who pays them.
Plan administration fees are typically charged for services performed in the daily operations of your 401(k) plan. These services may include recordkeeping, accounting, legal and trustee services. Each of these services is an important process in the day-to-day act of offering 401(k) plans. Additional services could be offered for a 401(k) plan as well. Often times you see additional services such as access to customer service representatives, seminars, investment advice, online transactions, etc. As you can imagine, each of these services could potentially increase the fees being paid for “plan administration”. These fees are paid for in various ways as well. Sometimes, the administration fees are covered by investment fees which are being deducted directly from returns on investments. Other times you may see these fees charged directly to the plan. In the case where they are charged directly, the employer offering the plan may be willing to pick up the expense for these fees or the plan may have forfeitures available to cover theses costs. If neither of these two options are available the participants will be charged a portion of the fees. When participants pick up these fees, it could be allocated proportionally based on asset values of each of the participants or charged to all participating as a flat fee.
Investment fees are usually the greatest expense for 401(k) plans due to the nature of the expense. This fee is typically charged for management of the plan investments. You see these fees mostly as a percentage of a specific investment. These fees are often hard to view within a plan as they are typically pulled against a participant’s account indirectly through the investment returns. You do not specifically see these fees in your statements and often employers overlook these fees as they are not readily available and apparent.
Lastly, you will see individual service fees. Often times a 401(k) plan offers additional services that are not covered under the basic plan administration fees. These services are offered to each individual participating in the plan and those individuals who wish to participate in each of the services are charged directly for these fees. One example of an individual service fee is the fee for obtaining a hardship withdrawal or for taking out a participant loan against an individual’s account.
For more information on fees and the recent transparency of fees and expenses ruling, visit the DOL website at www.dol.gov/ebsa.