"It is important to understand that there are two types of fees being charged – direct and indirect. Direct fees are those that are usually paid by the plan sponsor (business owner) and might include fees for plan documents, compliance testing, and investment advisory services. Indirect fees are usually charged to the plan assets (participants) and usually involve the recordkeeping and investment management fees. The indirect fees are usually the hardest to track down and can be substantial. Often times, bundled service providers won’t charge any direct fees and everything is billed indirectly to the plan. This is where some fall into the misconception that their plan is basically free.
Why is this important and why should you make an effort to understand the fees you are paying? Saving money is the obvious answer but did you know that as a fiduciary you are required by law to understand the fees and make sure that they are reasonable for the services provided. Here are some steps you should take to get you started:
- Review your current contract and agreements with all providers.
- Request fee information from all of your providers, including the investment fees.
- Ask specifically for indirect fee information and what each of your providers is getting paid. Some of these fees are called 12b-1, revenue sharing, sub-TA, investment advisory, sales loads.
- Request information about sources of revenue for your providers and how any conflicts of interest are avoided.
- Document your fee review and any decisions that you make.
The easiest way to determine if you are paying reasonable fees is to look at the annual charge as a percentage of assets. Most plans pay between 0.50-2.5 percent of the assets in the plan on an annual basis. You can also visit the Department of Labor website for additional information in their Retirement plans section (www.dol.gov)."
Sounds like good advice to me. Happy New Year and good luck digging for those dollars.