By Mark Olsen, Managing Director at PlanPILOT
If you’re a plan sponsor, you have a huge responsibility when providing retirement and healthcare plans to your employees. They rely on your integrity to help them build a solid financial foundation for their future. As a plan sponsor, you must act in the best interest of your employees, maintain their accounts, and make the best investment decisions to help them take care of themselves and their family. However, you might forget that one of the most important tasks is plan fee review.
Without taking the proper measures of disclosing your fees or ensuring they’re competitive and reasonable, your plan offerings probably won’t seem as effective for your employees. As a sponsor, you should know that the higher your plan’s fees, the less your employees will have to contribute to their plans. This is why you want to review your fees to make sure your employees can trust and depend on you to help them save for retirement.
How Often Should You Review Your Plan Fees?
Some say that reviewing your plan fees every 2-3 years is perfectly fine, however, I would say an annual review would be the wiser choice. Why? Lawsuits surrounding 401(k) and 403(b) plans have increased over the last few years and taking a proactive role in monitoring plan fees to ensure they can clearly demonstrate a prudent review process is followed.
As a plan sponsor, there are a couple different reasons why you should look over your plan fees on a periodic basis; the first reason being that you have a fiduciary responsibility to monitor plan fees and verify that they are “reasonable.” Higher fees mean you should have a good reason as to why you wouldn’t go with a less expensive alternative..
How Should You Review Plan Fees?
The best way to review your plan fees is by looking at what you currently charge your employees to maintain their retirement accounts. Every plan sponsor is different. While plans can have varying types of fees, the two most common are the investment and administrative fees.
The investment fee is one of the most significant retirement plan expenses, but there’s an upside. This fee is usually charged as a percentage of your employee’s assets invested, meaning that the fee is justified by how much money they have invested. Overall, this fee is what is paid to manage their investments in the 401(k) plan.. This fee will vary based on the type of investment management approach (i.e. passive vs. active and domestic vs. international), but it is important to benchmark these fees to their appropriate peers.
The administrative fee is charged to pay service providers who ensure the plan is running smoothly. This includes paying recordkeepers, accountants, and legal services who can protect you as the sponsor and your employees. This can either be charged as a flat dollar amoupnt, as a percentage against their total assets invested, or a combination of the two. Evaluating which fee approach for your plan is an important fiduciary decision and should be discussed and documented.
As the plan sponsor, it’s up to you to determine whether one or both of these fees are reasonable. Additionally, there are several online resources that can help you compare your plan, but you should always consult with a fiduciary consultant or advisor who understands your position as a plan sponsor. Speaking with a professional about your plan fees can offer a different perspective so you are able to better help your employees retire well.
Could You Benefit From Consulting With Us?
At PlanPILOT, we provide institutional retirement plan consulting for 401(k), 403(b), and defined benefit plans. As trusted consultants in the industry, we can help you develop a sound strategy for reviewing your plans’ fees so you can drive positive results for your employees. We want to help you feel confident and clear when it comes to your company’s benefit plans, which is why we do what we do.
Our comprehensive approach is focused on minimizing the fiduciary risk to plan sponsors and their committees, as well as minimizing the risk of negative participant outcomes. If you want to speak with an industry leader that keeps your best interests in mind, call us at (312) 973-4913 or email mark.olsen@PlanPILOT.com.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k) and 403(b) plan sponsors. Drawing on more than two decades of experience, Mark provides institutional retirement plan consulting to 401(k), 403(b), and defined benefit plans. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, Stable Value Investment Association, and CUPA-HR.