Retirement Plans Need TLC From an Objective Source
If your company sponsors a retirement plan, you — or your appointees — are the plan fiduciaries charged with making responsible decisions under the law. According to the Labor Department, fiduciaries must “carry out their responsibilities prudently and solely in the interest of the plan’s participants and beneficiaries.”
In order to monitor your company’s retirement plan, you need to be aware of the type of fees charged and ensure they are reasonable. Common fees include:
Plan administration fees, necessary to pay for the day-to-day operation of a plan. They include legal trustee, bookkeeping and accounting services. These fees may be deducted from investment returns, charged against the assets of the plan, or the employer may elect to pay them.
If the plan involves profit sharing, there might be additional services offered, such as investment advice, computer access to plan information, educational seminars, and many other options. Fees for such extra services can be allocated among individuals on a pro rata basis or charged as a flat fee against individual accounts.
Individual Service Fees that cover optional features offered to individuals. They may be charged separately, such as when a participant has a loan from the plan.
Investment fees, which usually make up the lion’s share of plan expenses. They are assessed as a percentage of assets invested. Investment fees are deducted directly from investment returns, so participants see the net total return after the charges are deducted. The fees may not be specifically identified on statements, and therefore, they may not be easy for fiduciaries to determine.
Because they are indirect, the Labor Department warns fiduciaries to keep a close eye on investment fees. They include:Sales, “load” or commission charges – These are the transaction costs for buying and selling investments. The way sales charges are calculated generally depends on the nature of the investment.
Management, investment advisory, or account maintenance fees – These are charges to pay for managing assets and are usually calculated based on a percentage of the assets invested in the fund. They vary widely depending on the investment product and the manager and might also cover administrative expenses. The Labor Department reminds employers that higher fees do not necessarily signify better performance.
– Source: The U.S. Department of Labor