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A Further Look at 401(k) Fees

September 1, 1999
Related Topics: Retirement/Pensions, Featured Article
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A participant-directed retirement savings plan, such as a 401(k) plan, is an important tool to help employees achieve a secure retirement. As part of offering this type of program, you or someone you choose must select the investment options from which your employees will choose, select the service providers for the plan, and monitor the performance of the investments and the provision of services.

All of these duties require you to consider the costs of the plan. As part of your evaluation process, here are 10 questions to help focus your consideration of fees and expenses:

  1. Have you given each of your prospective service providers complete and identical information with regard to your plan?
  2. Do you know what features you want to provide (e.g., loans, number of investment options, types of investments, Internet trading)?
  3. Have you decided which fees and expenses you, as plan sponsor, will pay, which your employees will pay, and/or which you will share?
  4. Do you know which fees and expenses are charged directly to the plan and which are deducted from investment returns?
  5. Do you know which services are covered under the base fee and which incur an extra charge? Do you know what the fees are for extra or customized services?
  6. Do you understand that some investment options have higher fees than others because of the nature of the investment?
  7. Does the prospective service arrangement have any restrictions, such as charges for early termination of your relationship with the provider?
  8. Does the prospective arrangement assist your employees in making informed investment decisions for their individual accounts (e.g., providing investment education, information on fees, and the like) and how are you charged for this service?
  9. Have you considered asking potential providers to present uniform fee information that includes all fees charged?
  10. What information will you receive on a regular basis from the prospective provider so that you can monitor the provision of services and the investments that you select and make changes?

Remember ...

  • Provide all prospective service providers with complete and identical information about the plan and what you are looking for so you can make a meaningful comparison. This information includes the number of plan participants and plan assets as of a specified date.
  • Consider the specific services you would like provided. For example, the types and frequency of reports to employer, communications to participants, educational materials for participants and availability of participant investment transfers, the level of responsibility you want the prospective service provider to assume, what services must be included and what are possible extras or customized services, and optional features such as loans, Internet trading and telephone transfers.
  • Make informed decisions in selecting and monitoring your plan service providers and investments.
  • Fees are just one of several factors to consider in your decision making.
  • All services have costs. Compare all services to be provided with the total cost for each prospective provider.
  • Obtain estimates from more than one service provider before making a decision.
  • Cheaper isn’t necessarily better.
  • Ask each prospective provider to be specific about which services are covered for the estimated fees and which are not. To help in gathering this information and in making equivalent comparisons, you may want to use the same format for each prospective provider. See http://www.dol.gov/dol/pwba for an example of a uniform fee disclosure format to assist in your selection and monitoring process.

SOURCE: U.S. Department of Labor, Washington, D.C.

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