Shedding Light on Retirement Plan Fees

Posted on: March 18th, 2013

If you participate in a voluntary retirement savings plan at work (such as a 401(k) plan) your [next/most recent] account statement may provide more information than your previous statements did. New Department of Labor regulations prompted the change. They require that retirement plan sponsors provide fuller disclosure about fees and investment performance to plan participants. Most plans [are/were] required to provide the information to participants by Aug. 30, 2012.

A December 2010 AARP survey revealed that a whopping 71% of respondents were unaware that they paid fees to their retirement plan providers to maintain their accounts.* The new statements could be an eye-opener for some people, but all employer-sponsored retirement plans involve fees and you’ve been paying them, whether you knew it or not.

The same survey found that four out of five people (81%) believe that the fees charged for investments are very or somewhat important in decisions about their 401(k) investments. But almost one-third (32%) reported that they do not feel knowledgeable about the impact that fees could have on their retirement savings.

Empowering You

Now you have the information you need at your fingertips! For each investment offered by your plan, your statement presents fees and expenses for investment management, including the operating expenses of the investment. Retirement plan sponsors must calculate expense ratios and provide the figure as both a percentage and a dollar amount per $1,000 invested. For example, if a fund’s annual operating expenses are 0.95%, it will list 0.95% and $9.50 ($1,000 x 0.95%).

Your statement also shows the plan fees that are charged to your account for administrative, accounting, legal and recordkeeping expenses. And it spells out other charges that may be levied if you make use of certain services, such as loans, sales charges, redemption fees or investment advice.

It’s Better to Know

Some plan sponsors may have been providing some of this information all along. But for others, the information may come as more of a surprise. If it’s all new to you, it’s important to understand that the fees aren’t new (unless the fees in your plan have coincidentally changed along with the statements); you’ve been paying them all along. And fees should be only one of several factors you consider when choosing investments. It’s also crucial to realize that cheaper is not necessarily better. You have to consider what you’re getting in return for the fees.

If you are a business owner and offer a retirement plan option to your employees, Seaside Wealth Management is here to help.  We work directly with plan sponsors providing investment advisory services.  We review your current investment options and investment performance, perform a fee analysis and then make recommendations to improve your plan accordingly.  To schedule a plan review please contact your Client Advisor or call Seaside Wealth Management today at 407-567-2216.