News Column

Fee Benchmarks Help Employers Understand Plan Costs

August 23, 2014



By a News Reporter-Staff News Editor at Investment Weekly News -- In today's complicated regulatory environment employers offering 401k plans have many fiduciary responsibilities they need to understand and follow. The one fiduciary responsibility that has received the most attention since the Department of Labor's 408(b)(2) fee regulations went into effect is 401(k) plan fees.

"There are three key questions employers should ask about their 401k plan fees. First, what is your total plan cost? Second, how are those costs allocated? Third, are they reasonable?" said Joseph W. Valletta, co-publisher of the 401k Average Book.

First, he recommends employers ask their providers to supply a single number that shows the total plan's cost. The 401k Averages Book, which publishes a variety of fee benchmarks, found the average total plan cost for a small retirement plan with 100 participants and $5,000,000 in assets is 1.29%.

Next, an employer should research how the total plan costs are allocated to their service providers. "A 401k plan has many working parts and there are fees associated with each service. New fee disclosure regulations have made it easier to learn what fees are paid and who receives them," said David W. Huntley, co-publisher of the 401k Averages Book. The book shows that the small retirement plan's 1.29% fee reflects the sum of 0.56% in net investment fees, 0.66% in revenue sharing, 0.06% recordkeeping/administration and 0.01% trustee.

Last, employers need to determine if their 401(k) fees are fair and reasonable. "The first step in determining reasonableness is to know what your fees are. Once you have identified your fees and compared them to a benchmark you can build in the service platform and efficiency to determine the value equation or reasonableness," said Huntley.

Keywords for this news article include: 401k Averages Book, Finance and Investment.

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Source: Investment Weekly News


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