As a plan sponsor, you have a major responsibility when providing retirement and healthcare plans to your employees, and we know you want to sponsor plans you can be proud to offer.
But there are quite a few obligations to fulfill for your employees—they’re even outlined on your own page on the IRS’s website. (1) You must act in their best interest, maintain their accounts, and make the smartest investment decisions to help them take care of themselves and their family. They’re relying on your integrity to help them build a solid financial foundation for their future, so it’s essential not to neglect one of the most important aspects: plan fee review.
If you don’t take the proper measures to disclose your fees or ensure 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 should review your fees to make sure your employees can count on you to help them save for retirement.
How Often Should You Review Your Plan Fees?
While some suggest reviewing your plan fees every two to three years, I believe an annual review is wise. Because lawsuits surrounding 401(k) and 403(b) plans have risen in recent years, it’s best to take a proactive role in monitoring plan fees to ensure they can clearly show a prudent review process is followed.
Plan sponsors should look over their plan fees on a periodic basis for a few reasons:
You have a fiduciary responsibility to monitor plan fees and verify they are “reasonable.”
If you have higher fees, be able to explain why you wouldn’t go with a less expensive alternative.
How Should You Review Plan Fees?
When beginning your review of your plan fees, start by looking at what you currently charge your employees to maintain their retirement accounts. Although 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 amount, as a percentage against their total assets invested, or a combination of the two. Evaluating which fee approach to use 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 can better help your employees retire well.
Could You Benefit From Consulting With Us?
Partnering with an experienced professional is a sound strategy when providing for your employees’ futures. At DCS Pensionmark, our goal is to design and implement the right retirement plan, the right way; and we pride ourselves on delivering quality expertise, clear communication, and reliability. As one of the original 100 accredited investment fiduciaries in America, we implement best fiduciary practices to ensure employees have appropriate investments from which to choose and that plan sponsors like you have a well-documented fiduciary process in place to help manage your risks of plan sponsorship.
If you want to speak with an industry leader that keeps your best interests in mind, schedule a conversation today by emailing firstname.lastname@example.org.
Dan Shapiro is a retirement plan advisor and holds the Accredited Investment Fiduciary® and Certified Plan Fiduciary Advisor certifications. With over 30 years of experience in the industry, Dan guides his clients through the entire retirement plan process, from plan design to compliance to investment oversight. His goal is to provide his plan sponsor clients with the ability to offer the right retirement plan the right way to their employees—a plan they can be proud of. He is one of the original 100 Accredited Investment Fiduciary® practitioners in the United States and uses his knowledge and experience to implement best fiduciary practices to ensure employees have appropriate investments to choose from and employers have a well-documented fiduciary process in place to mitigate risk. Dan is known for taking the time to understand his clients’ unique goals and situations and applying his holistic approach to customize and develop tailored strategies to improve outcomes and take some of the plan sponsor burden off their shoulders.
When he’s not working, you can find Dan at the park and marina near his house training his Australian Shepherd. He cherishes his frequent FaceTime calls with his grown children who live in Israel. In fact, Dan and his wife, Rita, consider their proudest life achievement to be raising their two children, Ashley and Joshua, to be productive and principled adults. Dan and Rita love to entertain, especially when it includes making great food with the smoker and barbeque. To learn more about Dan, connect with him on LinkedIn.
Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).
(1) IRS. (2022, June 15). A Plan Sponsor’s Responsibilities. https://www.irs.gov/retirement-plans/plan-sponsor/a-plan-sponsors-responsibilities