Fees: How Much is Too Much?

Plan fees and expenses are important considerations for all types of retirement plans. Plan Sponsors have always had the fiduciary duty to understand the fees being paid by their plan, identify all compensation received by their service providers; and make certain the fees are reasonable. While Plan Sponsors are the gatekeepers of the plan and its fees, a study by The LIMRA Secure Retirement Institute found that 50% of plan participants do not know how much they pay in fees and expenses and nearly four in 10 think they don’t pay any fees or expenses.

Understanding and evaluating plan fees and expenses associated with plan investments, investment options, and commissions are an important part of a fiduciary’s responsibility. And this responsibility is ongoing. After evaluation during the initial selection, plan sponsors must monitor plan fees and expenses to determine whether they continue to be reasonable in light of the services provided. How much is too much? Every plan is different, the bigger the plan the better the savings. Working with an Advisor who understands how the fees are charged and where they can be reduced is imperative to getting a better deal. In general, total expenses for larger 401(k) plans should be “below 1%,” preferably 0.25% to 0.50%, The key to knowing the answer is to ask the question. You cannot accumulate assets if you are paying out in expenses more than you are earning in returns.

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