"The future ain’t what it used to be” – Yogi Berra
The events of 2020 have dramatically impacted nearly every business. Companies have been forced to implement new policies and procedures to keep their employees safe, while protecting their existing book of business.
I believe companies understand things are different for now. In the past companies typically spent more as profits increased but struggled cutting back on expenses when income decreased or became less stable. Now, more than ever, is a time to review expenses, and cut back where possible.
One area to explore cost savings is in your company sponsored retirement plan, like the 401(k). There are a variety of reasons why a Plan Sponsor may want to start here.
Unclear or Hard to Understand Fees
401(k) plan fees are notorious for being confusing. 401(k) administration services include asset custody, participant record-keeping, Third-Party Administration (TPA), investment advisor and expenses for the investment’s options. Fees can be charged to the participant, to the employer and/or through the investment options. Fees may or may not include Form 5500 filings, 3(16) Administration services, 3(21) Investment Advice or 3(38) Investment Management services. Fees could be flat fees, per-participant fees, asset-based fees and 12b-1 fees or any combination of these. Is your head spinning yet? This type of confusion leads to plans unknowingly overpaying for services.
As a Plan Sponsor, you have the responsibility to monitor plan fees and to make a determination to the reasonableness and value for the services being provided. This requirement does not mean you have to work with the lowest cost provider, but it does put pressure on you to be able to justify using higher cost alternatives. There has been plenty of litigation surrounding 401(k) plan fees over the past few years. It is reasonable to believe the legal activity will spike due to the recent market volatility, overall panic and fear that many participants are feeling. As a general rule of thumb: Plans with 100 employees or less should review fees every 3 years and plans with 101–1000+ employees every 2 years. Having a fee review process can lead to better outcomes for your plan and plan participants.
Have you heard of compounding? Most of us have heard the term compounding as a reason to start saving early for retirement in order to maximize your retirement savings. However, did you know you can significantly reduce the effects of compounding by having excessive fees associated with your program? To put this in perspective, if you were being over charge by 25 basis points on a $5,000,000 plan, that equates $12,500 in excess charges the first year. Compound that over a 10-year period of time, and that’s $247,288[i] of lost earnings due to excess fees.
Over time, a small difference in plan fees can make a large difference in retirement accounts.
How do I Get a Clear Cost Comparison?
A clear cost comparison is critical to properly evaluate your plan expenses and compare them to benchmarks and competitive rates. It is easy to find vendors that will do the legwork for you by providing you a free cost comparison. However, we have found most Plan Sponsors have found it to be extremely difficult to compare fees from various providers given the fact that the fee structures are different from provider to provider. Therefore, you should always ask for a TOTAL PLAN COST comparison to be shown in total real dollars and as a percentage of plan assets. Once you are comparing apples to apples, you can break it down into participant cost versus employer cost.
Items to Remember:
- There is no such thing as a FREE Plan; all plans have costs.
- Be sure to document your review process, and your reasoning for selecting the service providers. A detailed six step fee review process can be viewed on our blog at: Fee Review Process
- Be sure to include a comparative review of the investment performance when evaluating your total plan costs.
Note from the editor: The Printers 401k® Program is a multiple employer aggregation program that includes 401(k) specialists who assume specific fiduciary duties for your plan. The solution is designed to help reduce cost, fulfill your fiduciary obligations, allowing you to continue serving as the Plan Sponsor without the liability and responsibility.
Companies that have participated in the Printers401k® Program have been able to:
- Reduce Risk and Work
- Lower Liability and Plan Costs
- Improve Plan Operations and Investments
Contact Joe Trybula CFP®, CPFA® at 800.307.0376 | firstname.lastname@example.org learn more about the Printers 401k® Program and how to optimize your company 401k program.
 Difference of the Future Value of $5,000,000 after 10 years earning 8% annual return versus $5,000,000 after 10 years earning 8% annual return with 25 basis points in excess fees.
Disclosure: For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.
Investment Advice and 3(38) Investment Fiduciary services offered through Diversified Financial Advisors, LLC, a Registered Investment Advisor. 3(16) Administrative Fiduciary Services provided by PISTL Service Corporation. Discretionary Trustee services provided by Printing Industries 401k Trustees.