Retirement Plan Costs
By: Chad Halbur
Reviewing and when possible, reducing, costs are on the radar for companies in today's economy. One cost that most companies have in common is their company retirement plan. This can be a source of confusion for some business owners because they really do not understand how their providers are paid. I have talked to some business owners who tell me they do not pay anything for their retirement plan. While that would be great, we all know nothing is free, so what are these people missing?
Retirement plan costs can come in many forms and can be paid by different parties. First, look at the party that is paying the expense: Plan expenses can be paid by the employer, the plan participants, or by a combination of the two. Second, look at the form the expense takes: Plan expenses can be structured as direct fees such as an annual administration fee or per participant fee, they can be a percentage fee based upon the value of plan assets, or a combination of the two. If you have the type of plan that charges a percentage fee, know that the percentage fees can be charged directly to the participants as a wrap fee, or built into the investment fees which are also a cost born by the plan participants.
I find that the business owners who believe they are not paying for their retirement plans feel this way because they are not paying any direct fees; instead the fees are being charged at the investment level and being paid by the plan participants. Insurance or annuity companies typically charge this way (they may also charge a wrap fee). This type of billing structure can make it difficult to assess the true costs of the plan, and it can also be a significant drag on the plan participant’s investment performance.
There are many different fee structures for 401(k) service providers (record keepers, third party administrators, and brokers). I do not feel one way is better than the other, but be aware that your plan does have a cost associated with it.
Our goal is to help educate business owners about the cost of their company sponsored retirement plan so they can make an assessment on the value they receive from their service providers for the costs they are paying.
Chad Halbur is a Principal with Cornerstone Private Asset Trust Company. Cornerstone works with business owners to establish and maintain retirement plans to help their employees achieve their retirement goals. You can contact Chad Halbur by phone at 866-200-6528, or email at Chalbur@Cornerstonetrust.net.