The issue of fees and expenses related to the operation of a 401k plan continues to draw great attention. We have pulled together a number of items that we think will give you a good feel for the issues you need to consider.
This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.
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As a 401k plan sponsor, signing provider contracts without fully understanding fees can be risky, especially as litigation over excessive fees has surged 35% in 2024. Many sponsors, overwhelmed by marketing jargon, overlook the hidden costs that can harm plan participants and potentially violate ERISA regulations. 401k AI fee benchmarking offers a powerful solution, providing clear, precise fee comparisons that help sponsors fulfill their fiduciary duties and avoid legal trouble. Despite its benefits, many plan sponsors aren't demanding this tool from providers, risking high fees and regulatory penalties. Adopting AI-driven benchmarking can transform unclear fee structures into transparent, compliant plans that protect both sponsors and participants.
The GAO report emphasizes the significance of employer-sponsored 401k plans for retirement savings, highlighting the role of mandatory fee disclosures by the Department of Labor. Since 2012, 401k plan fees have generally decreased, with various factors -- including fee disclosures -- contributing to this trend. The DOL implemented fee disclosure regulations in 2010 and 2012 to enhance awareness among plan sponsors and participants regarding fees and investment performance. Overall, while fee disclosures have positively influenced the management of 401k plans, enhancing financial literacy among participants may further improve their engagement and understanding.
Research by Abernathy Daley 401k Consultants reveals that nearly 80% of corporate retirement plans with over 100 employees are overpaying on administrative fees for 401k and 403b plans. This issue stems from a lack of regular compliance-related benchmarking, leading to potential compliance risks. The study analyzed Form 5500 filings from 6,566 companies, finding that 5,241 of them reported administrative costs exceeding the efficient baseline available in the market.
A new analysis of the drivers of U.S.-based defined contribution recordkeeping costs suggests that higher balances may not necessarily lead to lower costs. In fact, according to the study by CEM Benchmarking, higher participant account balances do not have much impact on reducing costs, but factors such as economies of scale, managed accounts, and proprietary investment options, instead, were found to be key cost drivers.
The fee disclosure regulations implemented by the DOL in 2012 were a game changer in the retirement plan industry. The big winners were plan participants who played less in fees, plan providers who believed in fee transparency, and plan sponsors who could exercise their fiduciary duty to pay only reasonable plan expenses. The losers were those who predicted gloom and doom and plan providers who didn't want plan sponsors to know how much their plan was being charged.
401k plan participants have incurred substantially lower fees for holding mutual funds over the past two decades, according to new research released today from the Investment Company Institute. Their research shows that from 2000 to 2023, the average equity mutual fund expense ratio paid by 401k investors dropped by more than half (60%), offering them higher returns and higher balances in retirement. The average bond mutual fund expense ratio has dropped by 63%.
The latest research from the Investment Company Institute shows that 401k plan participants have incurred substantially lower fees for holding mutual funds over the past two decades, offering them higher returns and higher balances in retirement. From 2000 to 2023, the average equity mutual fund expense ratio paid by 401k investors dropped by more than half.
Each year, the Multnomah Group gathers fee data from the different providers their clients utilize as recordkeepers for their plans. They compile the information and produce a report outlining the fees paid for recordkeeping the plan and benchmark those fees against peer group ranges. This 42-minute fee benchmarking webinar covers: The importance of fee benchmarking. Notable key results from the 2023 data. Understanding peer group range. What to do if plan expenses are above the peer group range. The benefits of a full vendor search. Identifying other areas where recordkeepers could generate profits from your plan.
Reviewing plan fees continues to be a top priority of defined contribution plan sponsors, according to Callan’s recently released 2024 Defined Contribution (DC) Trends Survey. The survey found top areas of focus for DC plan sponsors include plan governance and process, investment management fees, and administration fees. Fiduciary initiatives in 2023 centered on reviewing plan fees, the investment policy statement, and the investment structure. Things the survey found will also be top areas of focus in 2024, with reviewing plan fees as the highest priority (74%).
Encore Fiduciary has developed the first publicly available national database that provides reliable evidence of what large plans pay for recordkeeping services. Why is this important? Encore Fiduciary claims that given the lack of a reliable benchmark for what large plans pay for recordkeeping services, plaintiff law firms have filled the void with misleading comparators to support a recent wave of fiduciary malpractice claims.
With retirement plan fees serving as the centerpiece for many different fiduciary breach lawsuits, understanding fee dynamics has become a critical responsibility for plan sponsors and fiduciaries. This article is the first in a four-part series on understanding and evaluating retirement plan fees. In part one, we explore the different types of retirement plan fees by taking an in-depth look at investment costs, provider fees, and fee allocation methodologies.
Unchecked hidden fees in small business 401k plans continue to be an issue despite regulation, litigation, and advancements in plan design leading to years of fee compression, according to a recent white paper by the advisory Beacon Financial Services.
When it comes to saving for retirement, it's common to encounter fees, and the expense ratio is one of the most common. These fees cover costs associated with managing your investments. The expense ratio is calculated by dividing a fund's operating expenses by the average value of its net assets. This article breaks down what you need to know to better understand expense ratios.
The National Association of Government Defined Contribution Administrators published a fee guide for public sector defined contribution plans. Understanding and negotiating reasonable fees is a fiduciary duty to participants in a retirement plan, according to the guide. The guide lays out all the services and related fees a DC plan might encounter and explains the pros and cons of the various services and fee structures available to sponsors.
A crisis among retirement plan-sponsoring enterprises is unfolding. The challenge facing their leaders is to ensure that operations managers are equipped with the training, guidelines, controls, and tools that elevate fiduciary risk management to its proper priority. Underestimating the economic and reputational risks related to deficiencies in the prudent management of ERISA plans threatens an entire enterprise.
Under ERISA, plan fiduciaries are responsible for knowing the full extent of all expenses borne by their retirement plans and determining if they are reasonable. Conducting a benchmarking analysis of your plan's fees can help you understand these expenses and explore methods for reducing costs.
ERISA contains a provision that a contract or arrangement for employee benefit plan services and the fees for those services are reasonable, the so-called "Fee Rule." It is not well understood by retirement plan committees and is abused by some service providers to the detriment of their plan sponsor clients. Article contains five proven compliance action steps.
Investment fees for 401k participants fell to .02% from .05% in 2021, according to a Baltimore-based research firm, with smaller plans incurring slightly higher fees than larger ones with more than 50 employees. The biggest driver for the decline was an uptick in 401k investments being put into lower-cost-fund share classes and collective investment trusts, which also tend to carry lower fees as pooled investment vehicles.
Fees for 401k plans declined again last year, with the investment costs paid by retirement plan participants down an average of 0.3%, according to the latest 401k Averages Book.
Investment-related fees paid by 401k plan participants continued to decline in 2022, according to the new release of the 401k Averages Book 23rd Edition. Total investment costs declined between 0.02%-0.05% from last year, with the average representing a decrease of 0.03%.
The Oshkosh decision appears to create a favorable precedent for plan sponsors in the 7th Circuit since it narrowly applies the holding in Hughes. From the 6th and 7th Circuit, it appears that allegations have to compare the fees being charged with the quality and/or type of services being provided. Plan sponsors should review their investment lineup, compare investments under this standard, and maintain minutes of the deliberation process. Having a process-driven policy should mitigate fiduciary risk. Plan sponsors should also review their service agreements with their recordkeepers to fully understand how recordkeepers are compensated.
A key finding of a recent GAO study is that fees for 403b plans varied widely. The agency surveyed ERISA and non-ERISA plan sponsors and service providers and reviewed the most recent Form 5500 data. It noted in its report that non-ERISA 403b plans are not required to file a Form 5500 with the Department of Labor, making it difficult to get information about this segment of the market.
If your retirement plan recordkeeper wasn't acquired within the past few years, don't be surprised if it happens in 2022. The frenzied M&A activity across corporate America has been particularly evident in the retirement plan recordkeeping industry, and industry observers predict continued consolidation in the years ahead. The reasons industry stalwarts have exited the recordkeeping business are many, but a primary contributor has been the intense fee compression seen by the industry over the past decade. The organizations that remain are desperately seeking alternative revenue sources, leaving plan sponsors with several new concerns.
According to Euclid's whitepaper, "most large defined contribution retirement plans in this country have low recordkeeping fees – fees that are often five to ten times lower than the recordkeeping fees in most under $100 million small-asset plans." This new whitepaper, authored by Euclid's Managing Principal Daniel Aronowitz, reviews the common tactics used by plaintiff law firms to allege excessive plan administration fees.
Source: Euclidspecialty.com, March 2022
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