Guest Article Understanding the True Cost of Your 401k PlanAn employer-sponsored 401k plan can assist your employees in building long-term savings and help them replace income after retirement. In addition to selecting the plan investments available to your employees, monitoring the performance of those investments, and overseeing the quality of service received from your plan providers, you need to consider the true costs associated with operating the plan. All plan expenses, whether paid by the company, passed on to your participants or shared, should be clearly documented and as ERISA requires "reasonable." Reasonableness can be determined by evaluating the services included and by benchmarking against other plans with similar characteristics and features. Fees and Expenses May Not Always be Apparent To determine the source of fees and compensation that a provider receives in connection with the plan, you'll need to review non-explicit fees and expenses as well as revenue sharing arrangements with each investment option. Key non-explicit fees include: Soft dollars: Soft dollar "excess commissions" are monies paid to brokerages as defined by Securities Exchange Commission (SEC) Rule 28(e). Ask your provider who receives soft dollar benefits from mutual funds or other investments in your plan and what benefits have they received or continue to receive. Sub-TA fees: Sub-shareholder (participant) servicing fees a.k.a. "sub-transfer agent fees," "sub-TA fees" or "shareholder servicing fees." Are your providers receiving sub-transfer agent or shareholder servicing revenues, and if so, are the revenues offset against the costs as described in your service agreement? Check to see if you have signed a disclosure form that specifies each type of fee and the specific number of basis points or per participant charge assessed for each type of fee. 12b-1 fees: Account servicing and account distribution (sales) based 12b-1 fees. Your provider may also receive 12b-1 fees. What is the basis point rate of the 12b-1 gross revenue they receive? Did they place your plan's assets in a particular share class for a reason? You should have signed a disclosure form detailing the basis points charged as a 12b-1 fee for each fund in your plan. Plan Sponsor Checklist
Questions Employees May Ask
Monitoring Fees Is An Ongoing Responsibility Plan fiduciaries have an obligation under ERISA to prudently select and monitor plan investments made available to participants and the firm providing services to their plans. Evaluating plan fees and expenses associated with the plan's investments, investment selection, and services are part of a plan fiduciary's responsibility. Consistently monitoring plan fees and expenses to determine whether fees and expenses are fair in light of services received is part of making informed decisions for your plan and your employees. Portions of this article are excerpted from the 401k Plan Fee Disclosure Form and the 401k Plan Fees for Employees -- A Look at 401k Plan Fees for Employees a brochure published by the Employee Benefits Security Administration of the U.S. Department of Labor.
### 401khelpcenter.com is not affiliated with the author of this article nor responsible for its content. The opinions expressed here are those of the author and do not necessarily reflect the positions of 401khelpcenter.com. This article is for informational and educational purposes only and doesn't constitute legal, tax or investment advise.
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