Pensions have all but disappeared in the American workplace, so many now rely on 401(k) plans or employer-sponsored retirement plans as a way to plan for retirement. As of 2019, there is an estimated $6 trillion invested into 401(k) plans. That’s a lot of money! And, yet, many Americans who participate don’t realize that these retirement plans aren’t free and that large financial firms are making a lot of money on managing those assets.
Did you know that almost 40% of 401(k) participants believe they don’t pay fees; about 20% didn’t even know there were fees associated with their 401(k); and, about 15% don’t understand how fees are calculated. Yet, nearly every 401(k) provider charges fees. So, how do you determine what fees you are paying, and how much those fees cost you in retirement?
What Fees Are in Your 401(k)?
Typical 401(k) plans charge three basic fees, described by The U.S. Department of Labor as investment fees, plan administration fees, and individual service fees.
Depending on if your 401(k) plan is actively or passively managed, these fees can vary widely on the overall total cost to your investments. These fees include investment management and all investment-related services: expense ratios, sales loads and additional costs.
Plan Administration Fees
These fees cover general management like record-keeping, accounting, legal and trustee services. Typically the more customer service you have access to, the more these fees will incur. Employers tend to be the ones responsible for these fees; however, it is often passed down to the participant in one form or another.
Individual Service Fees
Think of these as administrative fees for additional services outside of the everyday managing of a 401(k) plan. Things like taking out a loan on your 401(k), rolling a 401(k) into an IRA, or investment advisory services. These fees are incurred on the individual level for the specific needs of each participant. We encourage you to look into what those fees are and weighing out the benefits before taking on those additional costs.
One study found that 401(k) participants pay an average all-in fee of 2.22% of their assets. That may sound small, but it can eat away at your retirement.
At SaveDay, we keep the fee structure simple and straightforward. Contact us today, and see how a SaveDay 401(k) plan for your company will give your employees the opportunity for their investments to grow freely.