Few want to get into the weeds when it comes to 401(k)’s hidden expenses. But it always make sense for you to vet your plan, since fees eat into your retirement kitty.
Although some employers may pay for administration expenses, no plan is free. You have to ask questions on how much you’re being charged. Some of the fees are avoidable.
Thanks to a new report, you can think like an employer vet your plan for specific expenses.
Some expenses may be expressed as a percentage of assets under management, say 1% a year. That’s pretty typical. But you should know that you can pay much less because the 401(k) business has never been more competitive and fees have dropped in recent years.
Generally, you should look for fees covering administration/recordkeeping, investment management and brokerage or advisory fees. Here’s what to look for, according to Grinkmeyer Leonard Financial:
As its name implies, this type of compensation represents direct payments from the plan or plan sponsor to a provider for specific services rendered. It is typically paid as a flat dollar amount or as a percentage of plan assets. Fees that fall into this category often cover plan-level expenses, such as recordkeeping, administration, or advisory services.
Commonly known as revenue sharing, indirect compensation refers to fees generally collected from plan investments that are passed through to other service providers. Investment costs, including revenue sharing payments, often represent the majority of a plan’s total fees.
Ask about “Sub T/A” fees. which are paid to a subcontracted third party for the accounting of participant shares. There also may be “12(b)-1” fees, which are found in more than half of all 401(k) investment vehicles. This fee represents payment to broker for the sale a fund, and fees paid for the ongoing servicing of the account or plan.
There also may be a “shareholder servicing fee.” These fees are paid in addition to 12(b)1s for services rendered to the plan, such as recordkeeping and administration.
What do you do when you identified and tallied these expenses? Go to your plan’s administrator and ask how they can reduce the total cost to you. You can usually get a better deal, but you have to ask.
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