It’s amazing how often I’ve heard that exact sentence or variation of the above question over the years, but there are still people who think these 401(k) plan providers and advisors are doing free work. Let this be a wake-up call to those who really think that’s the case: The reality is that you ARE paying fees, but you probably don’t know how much those fees really are. Changes will go into effect soon that will make these fees much more transparent to 401(k) participants and plan sponsors as well.
How could people really think that? Due to non-enforcement of fee disclosure requirements and lack of consistency in industry reporting among providers, it is clear why some people believe they are not paying any fees for their plan. However, as is often the case, a quality 401(k) plan is NOT just about who has the lowest fee structure, but rather the entire 401(k) process and what it is designed to do (very often forgets ) – help people save effectively for retirement.
There must be a quality group of professionals who combine their efforts to manage all the important components of the 401(k) plan. Advisors who will share fiduciary responsibility with the plan sponsor, TPAs who know how to handle complex reporting requirements, providers who offer an open architecture platform of investment options – these and other professionals (ERISA attorneys, payroll providers, etc. .) ) are critical to making a 401(k) plan the best possible plan for your employees. They must also have the quality of character not to charge excessive fees, but rather to charge what is appropriate given the market, the size of the plan (both number of participants and total dollars), and the amount of work performed. After all, we all want to make a living in our professions, but it shouldn’t be at the expense of the best interests of our 401(k) participants.
In closing, I want to make it very clear that it’s okay to pay fees for your 401(k) (or any other type of retirement plan you may have at work: 403(b), pension, 457, flat cash balance, etc). We all pay something for these plans, whether we know it or not. Getting the clear value of a 401(k) plan (retirement savings and a reduction in taxable income) comes at a cost, but it depends on whether or not we believe the fees for all services provided are fair. Hopefully with the advent of these new fee disclosure requirements we can all feel confident that part will move on and focus on the real reason for a 401(k): helping people reach their retirement goals.