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COLLECTED WISDOM™ on 401k Plan Fees and Expenses

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.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.

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Annual Fee Benchmarking

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.

Source: Multnomahgroup.com, May 2024

Plan Sponsors Focused on Reining in Fees: Callan

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%).

Source: 401kspecialistmag.com, April 2024

Benchmark Survey on Recordkeeping Fees for Large DC Plans Debuts

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.

Source: 401kspecialistmag.com, January 2024

Understanding and Evaluating Retirement Plan Fees: A Holistic Approach

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.

Source: Captrust.com, January 2024

Why Small 401k Plans Should Remain Wary of Hidden Fees

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.

Source: Planadviser.com, December 2023

Understanding 401k Expense Ratios and Why They Matter

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.

Source: Guideline.com, October 2023

Understanding Plan Fees, With Help From NAGDCA

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.

Source: Planadviser.com, October 2023

Retirement Plan Fees Worsen Enterprise Risk: A Management Briefing

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.

Source: Rolandcriss.com, September 2023

Retirement Plan Fees: Are You Being Overcharged?

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.

Source: Usicg.com, August 2023

Clarifying the Fee Rule

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.

Source: Rolandcriss.com, May 2023

CITs and Lower-Cost Funds Drive Down 401k Plan Fees

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.

Source: Plansponsor.com, February 2023

401k Fees Decline Again in 2022

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.

Source: Investmentnews.com, February 2023

401k Plan Fees Declining, But Small Plans Still Pay More

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%.

Source: 401kspecialistmag.com, February 2023

In ERISA Excessive Fee Cases, the Pendulum May Be Swinging Back in Favor of Plan Sponsors

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.

Source: Foxrothschild.com, September 2022

Study Finds Wide Range in 403b Plan Fees

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.

Source: Plansponsor.com, April 2022

Plan Recordkeeping to Get More Expensive

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.

Source: Francisinvco.com, March 2022

Whitepaper: Debunking Recordkeeping Fee Theories in Excessive Fee Cases

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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