Discover and assess the extra expenses hiding in your 401(k) plan.
When was the last time you looked closely at each line item on your 401(k) statement? There might actually be extra fees in there of which you are not aware. While it’s true that your employer likely pays for the administration expenses of the plan, you have to take a look at what other fees are being charged and determine which ones might be totally avoidable.
Below you will find some general rules and guidance when it comes to assessing those extra charges on your 401(k) statement.
By John Wasik
Generally, you should look for fees covering administration/recordkeeping, investment management and brokerage or advisory fees. Here’s what to look for, according to Grinkmeyer Leonard Financial:
Direct compensation: As its name implies, this type of compensation represents direct payments from the plan or plan sponsor to a provider for specific services rendered. It is typically paid as a flat dollar amount or as a percentage of plan assets. Fees that fall into this category often cover plan-level expenses, such as record keeping, administration, or advisory services.
Indirect compensation: Commonly known as revenue sharing, indirect compensation refers to fees generally collected from plan investments that are passed through to other service providers. Investment costs, including revenue sharing payments, often represent the majority of a plan’s total fees.
Other Fees. Ask about “Sub T/A” fees. which are paid to a subcontracted third party for the accounting of participant shares. There also may be “12(b)-1” fees, which are found in more than half of all 401(k) investment vehicles. This fee represents payment to broker for the sale a fund, and fees paid for the ongoing servicing of the account or plan.
There also may be a “shareholder servicing fee.” These fees are paid in addition to 12(b)1s for services rendered to the plan, such as recordkeeping and administration.
What do you do when you identified and tallied these expenses? Go to your plan’s administrator and ask how they can reduce the total cost to you. You can usually get a better deal, but you have to ask.