Are You Keeping Up with The Joneses on Your 401(k) Plan Fees?
By: Scott Fischer
As a plan sponsor, it is your responsibility to make sure you are paying reasonable 401(k) fees. The Department of Labor (DoL) requires that your 401(k) fees are reasonable but does not define reasonable fees. So how do you know whether your 401(k) plan fees are deemed “reasonable” in the first place? Below we will outline several ways you can determine whether your 401(k) fees are in line.
Benchmarking Your Plan
One way you can determine whether your 401(k) fees are reasonable would be to benchmark your plan against survey data. Benchmarking is the process of organizing, reviewing, and then evaluating if the 401(k) plan your company offers is competitive.
Price Check At Least Every 3 Years
You do not need to issue an RFI or RFP every year in order to monitor your fees. We suggest price checking at least every 3 years. You should go out to the market and get pricing from a few sources. If prices are lower, but services stay the same, you should negotiate or move the plan to a better service. Price checks should also be done if there are any changes within plan assets. One thing to note is just because the plan isn’t the lowest price, doesn’t mean it has to be. The fee needs to be in line with the services offered and the market. You shouldn’t expect Motel 6 pricing if you’re using Ritz Carlton services.
Offer the Right Investment Options
Whether or not your company is paying fees, or you are paying fees from plan assets, you should make sure that the share class you are using for every mutual fund offered in your 401(k) plan is the lowest-cost share class available. Many participants feel that including index funds in your 401(k) plan is the best and most cost-effective way to invest. We suggest using a mixture of low-cost share classes and index funds. The majority of lawsuits against fiduciaries revolve around fund expenses.
Enza Financial Example
Enza Financial checked pricing for a client after 3 years and found that their fees were in fact very low for the market. Regardless of price, we asked the provider for a lower rate and they ended up honoring that lower rate. In doing so, our client was very satisfied with their savings. If your plan is in line, that doesn’t mean you can’t ask for lower prices. It doesn’t hurt to check because you might just get what you ask for.
In the Ballpark
As a plan sponsor, it is a challenge to determine whether the costs you are paying are reasonable. Some ways you can do this is by benchmarking your plan, conducting a price check at least every 3 years or more often if plan assets change, offering the right investment options for your employees, and asking for lower pricing even if your plan is in line. This will help you to define reasonable as “in the ballpark” and remember everything I touched on above when you are making sure your 401(k) fees are in line.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered Broker/Dealer and Investment Advisor, member FINRA/SIPC. Enza Financial LLC is independently owned and operated.