As the sponsor of a retirement plan, you’re helping your employees pursue their retirement dreams and work toward a more secure financial future. But sponsoring a program comes with a lot of responsibilities, including making important decisions about its management and fees.

Fees and expenses are some of the most important considerations for retirement plans. You, or the firm you work with to serve as your plan’s fiduciary, are obligated to judiciously choose and monitor the plan’s investment options available to your employees, as well as the fees and expenses associated with those investments and your program’s services. Multiple expenditures can quickly add up, and you don’t want these charges eating into your employees’ retirement savings.

This may sound like an overwhelming task, but a greater understanding of a plan’s fees can help you make more confident and informed decisions.

The Categories of Plan Fees

Your retirement plan may have a variety of plan fees and expenses. In general, there are three main categories of fees, including two related to the retirement plan, and one that concerns the plan’s investments:

Administrative Expenses

These costs go toward the day-to-day operations of the plan. Maintaining a retirement plan entails legal, accounting, and recordkeeping services, along with participant education. Each participant pays these fees on a proportional basis. Most often, these fees are conveyed as a dollar amount for the plan.

Individual Service Expenses

Some plans include individual service expenses in addition to administrative costs if participants take certain actions. These fees would be charged separately to the individual accounts of those who take advantage of an optional plan feature. Such features may include fees for investment advice, sales charges, redemption fees, commissions, processing plan loans, and optional rider charges in an annuity contract.

Investment Product Fees

Every investment option charges individual fees for managing the investments. These are often the biggest component of your plan’s expenses. Most often, fees for investments are charged as a percentage of assets invested. There can be multiple investment product fees involved, including:

• Total operating expenses: the administrative costs for the investment management company for the day-to-day investment of the fund, including transaction costs for buying and selling shares.
• 12b-1 fees: the cost to service, distribute, and market the fund.
• Sales charges: also known as a sales load, this is a fee related to the purchase of funds, such as whenever you make a contribution or withdrawal.
• Annuity fees: if your plan offers the option to invest in annuities, fees may apply to cover the cost of providing guaranteed death benefits prior to retirement and guaranteed lifetime benefits to retirees who surpass their life expectancy.

Plan sponsors should especially pay attention to their plan’s investment fees, as these can significantly reduce the rate of return your participants will receive.

Fee Strategies

There are multiple strategies plan participants can utilize to reduce how much they pay. For example, with revenue sharing, a mutual fund company charges a fee but refunds a portion to the plan recordkeeper to pay for administrative expenses.

Another strategy is fee levelization, which is designed to address the imbalance. In this case, each investment option in your program would have the same revenue-sharing percentage amount. All participants would take on a commensurate share of the administrative fees. Another option is to charge participants an equal dollar fee instead of a percentage amount, regardless of their savings balance or investments.

Understanding What You’re Paying and Receiving

Review the fee disclosures closely, but remember that the cheapest investments may not be the most appropriate for you and your employees. You’ll want to weigh the pros and cons of your options.

Your plan paperwork will outline your fees and expenses. Determining the exact costs you’re paying, however, can be tricky. This is where a financial services firm can help. By acting as the fiduciary, they can take away some of the risks you face and delineate your account fees, what your participants are paying, and what your other options are. You’ll want also to review the services you’re receiving for those fees. Some of these services may include an in-depth analysis of your plan’s investment lineup, a fiduciary plan review, recordkeeper searches, plan fee analysis, or an Investment Policy Statement (IPS).

Through your review, you may determine that there are less expensive alternatives available, or that for a minimal additional fee, you can provide your employees more advanced services, such as more in-depth participant education and workshops or one-on-one investment advice.

Regularly Benchmark and Compare

Benchmarking your retirement plan provides you a comprehensive view of its performance and weak spots that can be corrected. Ideally, you benchmark your fees and services on an annual basis. Here are a few of the main reasons why benchmarking is so important:

• It’s legally required. You are expected by the Department of Labor to monitor your retirement plan’s costs. If you don’t benchmark and compare to other available options, you may be paying more than you have to.
• It’s educational. If you work with an objective third-party firm, a benchmarking report can help you better understand your plan, including participant success measures and fees. It’s much easier to know what changes to make if you can see on paper how your plan is performing.
• It can help you save money. Due diligence market analysis and independent cost benchmarking can help you determine the competitiveness of your plan and potentially help you leverage a cost reduction from your service providers.

Along with benchmarking annually, consider taking your plan out to market every three to five years and conduct a more thorough plan analysis. Both of these can be performed in several different ways. Unless you’re well-versed in retirement plan consulting, it may be most appropriate for you to work with an investment advisor to run a benchmarking report and evaluate the competitiveness of your plan.

Next Steps

Building a successful retirement plan for an organization can be a daunting task, especially among the other demands that come with running an organization. At Beacon Pointe Advisors, we seek to be an extension of a client’s organization that helps simplify the process. We believe that every employee should retire with adequate income replacement, and through plan design and successful participant education, employers can create a successful retirement.

If you have additional questions about your plan’s fees or whether it’s time to benchmark your plan, we’d be happy to meet with you. Give our office a call at (949) 718-1600 or email us at info@bpadvisors.com.

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

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