As a small business owner, offering a employer-sponsored 401k retirement plan to your employees is an attractive benefit that will generate both goodwill and loyalty among your workforce. This is especially true these days, when countless businesses big and small have been reducing or dropping altogether their health care and retirement plans.
But, it is not enough to merely offer a 401k plan. In order to protect your employees’ future retirement assets and to protect yourself or your company from a potential lawsuit, you need to make an effort to ensure that the 401k plan you are sponsoring is not charging excessively high fees.
According to the U.S. Department of Labor, the fees for 401k plans typically fall into one of three categories:
- Plan Administration Fees. As the name implies, these fees are incurred in order to cover the daily operation and administration of the plan.
- Investment Fees. This basket of fees is tied to the management of plan investments. Fees for investment management and other investment-related services generally are incurred as a percentage of assets invested.
- Individual Service Fees. This section of fees covers specialized or optional features, such as being able to take a loan out against the plan’s balance or initiating personalized investment directives.
Some of these fees are covered by the employer, while others are charged to the account holder. As a rule of thumb, you should aim for a plan that charges no more than a total of 1.5% in fees. To get at the actual number being charged you should contact your plan provider since some fees (especially those in the investment fees category) may not show up in your employees’ statements. If the fee is too high, then see if it can be reduced by cutting back on services, choosing to invest in a index fund, or changing service providers altogether.
Bottom line: when it comes to your employer-sponsored 401k retirement plan, exorbitant fees have no place.