Most Minnesota company retirement plan participants don’t fully understand the different parts of their company 401(k) retirement plan account. Here is a brief summary of how the different parts of a company 401(k) retirement plan account fit together.
Your company is called the company 401(k) retirement plan provider. In most cases your company matches up to a certain dollar amount your annual contributions to you company 401(k) retirement plan account.
Your company 401(k) retirement plan provider hosts the company 401(k) retirement plan web site. This company answers the phone when you call, and sends out your quarterly statements. This company that has the actual possession of your company 401(k) retirement plan assets.
The company 401(k) retirement plan administrator handles compliance functions. They audit the company retirement plan and prepare the annual company retirement plan tax return. This company is behind the scenes and does not directly communicate with individual company 401(k) retirement plan participants.
Company 401(k) retirement plan providers and administrators earn their compensation through revenue sharing agreements. These company retirement plan service providers deduct their fees out of individual company 401(k) retirement plan participant accounts.
You didn’t really think that your company 401(k) retirement plan account was free, did you?
There are two types of financial advisors involved in a company 401(k) retirement plan offering. Commission-based brokers and registered investment advisors.
A commission based broker is the person who sold your company 401(k) retirement plan offering to your company. Brokers earn their compensation through percentage-based kickbacks built into the company 401(k) retirement plan menu mutual funds.
Registered Investment Advisors provide investment advice to individual company 401(k) retirement plan participants. Investment advisory fees are based on a percentage of retirement plan account assets or are a flat fee.
Individual company 401(k) retirement plan participants rarely get a full explanation of who is taking money out of their company 401(k) retirement plan account. In addition, they never really get an idea of how much they are taking, and why they are taking it.
I hope that this quick summary helps answer those questions. After all, it is your money.
Ric Lager
Lager & Company, Inc.
