Skip to main content

You are here

Advertisement

What Should an Employer Pay for a 401(k)?

Chris Carosa of Fiduciary News tackles the question that seems to be on many people’s minds: What are the appropriate fees that an employer should pay for its 401(k) plan? Like most difficult questions, the answer is complicated. But perhaps even more important, how can an employer know if its plan fees are appropriate? Again, Carosa finds that the answer depends on many factors.

There are three elements to consider when benchmarking fees:

• The validity of the underlining data
• The methodology used to evaluate the data
• The specifics of the plan, including services offered, the needs of the plan and participants, and plan profile (e.g., size and account balances)

Not mentioned: effectiveness or participant outcomes when evaluating fees.

Plan sponsors often get confused about fees, focusing on just the amount, but they also need to consider how they are paid (hard or asset-based fees) as well as who pays for them. Distribution costs are another element, as most plans — especially smaller ones — aren't bought, they're sold. Smaller plans often have to sacrifice service and flexibility for costs, but with MEPs and perhaps the new starter 401(k) plans proposed by Sen. Orrin Hatch (R-UT), they may have more options in the future.

Advertisement