What Retirement Plan Sponsors Need to Know About Fees

A few months ago we met with a construction company with 25 employees to discuss their 401(k) as plan sponsors. During the discussion, they mentioned that their current recordkeeper cost was minimal. We asked for their annual fee disclosure statement and once they sent it over we started to analyze it. Now, anyone who has looked at their fee disclosure would agree that they are extremely hard to understand and every company does it differently. The laws in place say that fees need to be reported, but there is no standard saying how to easily show the fees. We believe in showing the costs as clear as day to know how much you are paying each provider. We’ve looked at countless fee disclosures and this one was unreadable even for us, so w

e decided to call said recordkeeper. This seemingly easy task proved to be more of a challenge than we could have imagined.

After three weeks of calls and emails to try to get to the bottom of the fees, they kept telling us the advisor’s fee, TPA’s fee, and fund fees, but wouldn’t tell us their own fee. As plan sponsors, we knew how much these other fees were already and given the total fee reported, the result would have given the recordkeeper a negative fee. We know nobody, including recordkeepers, works for free and especially won’t pay for the work they do. When they finally divulged their fee, it was as we had suspected, an egregious amount. The plan had $800,000 in it and was paying nearly 2% in recordkeeping fees alone! We showed the CFO and he was also shocked. He believed they were paying a fair fee, but once we drilled down into it, we found the opposite to be true. Needless to say, the company decided to leave that recordkeeper once we did a Request For Proposal for them to show them what other recordkeepers would charge. The savings were nearly $10,000 per year.

Contact us if you’d like to benchmark your fees. It’s complementary and about 35% of companies walk away with a clean bill of health.