Setting up a group retirement plan for your employees can be a great way to provide them with financial security, but it’s important to understand the costs associated with these plans. Many employers are unaware of the hidden fees and expenses that can impact the overall cost of the plan. In some cases, these fees can eat into the retirement savings of both the employer and the employees.
How Much Should a Retirement Plan Cost? Fiduciary Duties and Hidden Fees
One of the most important considerations for employers is understanding their fiduciary duties when it comes to managing retirement plans. As a plan sponsor, you have a responsibility to ensure that the fees associated with your retirement plan are reasonable and transparent. Failure to meet these fiduciary responsibilities can result in litigation, as we’ve seen with several companies being sued for excessive fees in recent years.
While some retirement plan providers advertise “free” plans, the reality is that the fees are often hidden within the investment options or administrative costs. Employees may not realize that their contributions are being charged higher fees for things like mutual fund expenses or advisory services. These hidden fees can significantly reduce the amount of money employees will have when they retire.
What Are Third-Party Administration Fees?
In many 401(k) plans, a third-party administrator (TPA) is involved in handling the administrative side of the plan. TPAs are responsible for managing compliance testing, ensuring the plan adheres to ERISA regulations, and filing required documents with the IRS. While TPAs provide a valuable service, their fees can add up, often without employees or employers realizing it.
In addition to the TPA fees, recordkeeping fees are also a common expense for retirement plans. Recordkeepers help maintain individual accounts and generate statements, but their services come at a cost. Again, these fees are often hidden or not clearly explained to employers or employees, making it difficult to assess whether they’re paying a fair amount.
At Langan Financial, we believe in full transparency. We help employers understand the true costs of their group retirement plan, including advisor fees, third-party administration fees, and internal investment expenses. We line-item every fee to ensure there are no surprises and that the plan is meeting its fiduciary duties.
Why Monitoring Fees of Retirement Plans is Essential
To ensure that your company’s retirement plan remains cost-effective and meets your fiduciary responsibilities, it’s essential to monitor fees regularly. At Langan Financial, we conduct periodic benchmarking of retirement plans and request live bids from multiple vendors every three to five years to ensure that fees are reasonable and in line with industry standards.
By actively monitoring fees and comparing vendors, you can ensure that your company is getting the best value for the retirement plan it offers. With careful planning and regular oversight, you can keep fees under control and ensure that your employees’ retirement savings are protected.
