Most workers in the U.S. rely on their employer-based 401(k) or similar plan as their main vehicle for retirement planning. For something so important, being able to “check under the hood” and gain a better understanding of your retirement plan is a vital aspect to long-term plan health and sustainability.
While things may look fine on the surface, the devil is in the details when it comes to fund management, performance and especially hidden fees. Understanding and managing plan costs are an essential part of managing a 401(k) and Profit-Sharing plans.
Like most problems in life, having a thorough understanding of the details can also lead to solutions. Doing a deeper dive into plan fees can help illuminate key factors that are happening that employers may not be fully aware. Fees can often be a major reason for plan litigation, so employers have plenty of motivation for investigating their own plans.
For over 20 years, CAPTRUST has offered a free 401(k) benchmark report to MMA members which evaluates current plans against similar plans while also helping fund managers gain valuable insights.
MMA members often see different benefits from the evaluation. Typically, there is more than meets the eye when it comes to any 401(k) plan. A 401(k) benchmark report can be very effective at uncovering areas of interest and important red flags. Regardless of the outcome, completing a benchmark study for the plan is one of the best actions employers can take to understand what’s happening inside their 401(k) plans.
Plan costs are presented as basis points or as a percentage of assets, making it more difficult to compare one plan to another from a benchmarking perspective. Some plans include both per participant fees in addition to per capita fees. Often, the full collection of fee types occurring within a plan is only provided to employers annually in a fee statement. The statement is referred to as the 408(b)(2) statement and is an important document to review and understand in the battle of controlling plan costs.
Fees can be complicated due to how they are assessed but also due to the types of the investments, share classes, and revenue-sharing relationships in place between the investments (mutual funds), the plan advisor, the plan provider and the third-party administrator (TPA). It’s one thing to know total plan costs but determining how the money flows inside the plan and how the various fees are being allocated to the different services being rendered can be even more important. A 401(k) plan might operate far more effectively just by understanding and adjusting how the existing fees are being utilized.
Taking the time to examine the inner workings of your retirement plan can improve peace of mind for CEO’s and fund managers as well as the confidence and comfort level of your employees. Maybe now is the right time to take that step and develop that understanding.
MMA’s Freedom401k™ program is one of the most comprehensive 401(k) programs available and has offered successful retirement plan solutions for over 20 years. Members can receive a free 401(k) benchmark analysis to see where your current plan stands. See Member Benefits to learn more or contact MMA’s Brenda Nalett at 517-487-8512 or firstname.lastname@example.org.