As business owners, we all wear a number of important hats. Trying to run and grow a business is an 80 hour week job in itself. When it comes to choosing a provider for your 401(k) or retirement plan business owners often choose the path of least resistance or delegate the responsibility to a department head who does not have a lot of experience with retirement plans. We often look to set up what will be the easiest solution for the business. A number of business owners also look at solely employer costs as a deciding factor when selecting a retirement plan provider.
A 401(k) fee benchmark is such an important tool that can help you understand the fees you are paying and make sure that they are competitive in relation to the services that are offered. As a Plan Sponsor and Fiduciary, it is your fiduciary duty to ensure that your employees are paying reasonable fees for these services. You are not required to find the cheapest provider, only that the fees are reasonable in relation to services provided.
But isn’t that the catch? How are you to know what a “reasonable” fee is?
A 401(k) fee benchmarking study will compare all of the fees in a 401(k) account including those hidden 401(k) fees that you may not be aware of. The best thing that you can do as a sponsor is to use the 408(b)(2) disclosure that you are required to receive to make sure that their employees are not paying excessive 401(k) fees. A fee benchmark is crucial to ensuring that you are meeting your fiduciary duties to your employees.
Many plans that we have taken over were initially started with the two factors mentioned above as the only criteria in selecting the provider. What they missed was the hidden or not so clear fees that participants were paying for recordkeeping and the actual investment selections. The plan appeared inexpensive and easy to run, but after performing a benchmarking study after years into the plans life many company’s are shocked at how expensive the plan really is. We can point to numerous examples of plans we have taken over where total fees were running 1.50% – 2.00% per year of assets! Imagine how much money was lost to fees in these retirement plans.
If you have not figured it out yet: Yes, you do need to benchmark your 401(k). This is the only way for you to ensure that you are getting the best services for the best price.
You may be tempted to try to do all of this research on your own. The problem is that if you are not an expert in this field, you may not know exactly what you are looking for when you see the 408(b)(2) disclosures. We have written other articles that explain the basics of the 408(b)2 disclosure. While you can attempt this on your own, Wellington Retirement Solutions will perform free of charge, a 401(k) benchmarking service. The Benchmarking Report gives potential clients and current clients a valuable resource in making sure the company retirement plan is only paying reasonable fees for services offered.
If you have not already benchmarked your 401(k), you need to today. This is the only way that you can make sure that your retirement plan expenses are reasonable for the services offered.
Mr. Dix is a Senior Pension Consultant and owner of Wellington Retirement Solutions, Inc. with over 25 years of experience in the industry. Wellington Retirement Solutions, Inc. can help you determine what type of 401(k) Plan is ideal for your business. Even if you already have a 401(k) Plan, allow us to review your Plan provisions for peace of mind to know that the design of your 401(k) Plan meets your goals & objectives. We are committed to providing personal service excellence. If you have any questions regarding the information in this article then please reach out to one of our specialists at (888) 934-4015.– Stephen Dix, ERPA, QPC, QKA