The annual fee structures of company 401(k) retirement plans are very complicated. Most of the new required fee disclosures have not helped. Individual company 401(k) retirement plan participants still struggle to understand how much the company 401(k) retirement plan savings account costs every year.
401(k) plan fees and expenses can be separated into three categories. First, there are plan administration fees. Plan administration fees cover the day-to-day expenses of operating a qualified retirement plan. Record-keeping, accounting and legal services, trustee services and third party-administration are all administrative fees.
Second are individual service fees like self-directed account costs, loans, withdrawals and QDROs, which are qualified domestic relations orders. Individual service fees are typically charged to the individual company 401(k) retirement plan participant.
Third are the investment fees. They are very important to understand because they are often the largest part of your company 401(k) retirement plan annual fees and expenses.
Check to see what mutual fund share class is being used in your plan. Some plans offer institutional shares while others have retail shares. Mutual fund shares have different types of loads. “A” shares charge a front-end load. “B” shares charge a back-end load. “C” shares have a higher ongoing trail fee, generally an additional 1%. Index mutual funds are typically low-cost and should be the best mutual fund option.
The fourth type of common investment fee is the 12b-1 fee. 12b-1 fees are ongoing fees paid out of the mutual fund’s net asset value on a daily basis. These fees pay commissions to brokers or other salespeople and service providers.
Even some no-load mutual funds can have 12b-1 fees. These fees are disclosed in the fund prospectus. You can find that information online on you company 401(k) retirement plan provider web site.
Understand the fees you pay and consider the services and investment performance you get in return. It is up to you to make your company 401(k) retirement plan the best deal possible.
Ric Lager
Lager & Company, Inc.
