Reviewing Your 401(k) Plan Expenses
As a plan sponsor, you have a fiduciary responsibility to make sure your 401(k) plan is operated in the best interests of participants. You have the Duty to Prudence under ERISA to make sure you’re periodically reviewing costs and service.
Depending on the size of your plan, it may be easy to do it on your own, or you can hire someone to help. Here are some steps you can take:
1. Download a Fee Disclosure from your Service Provider.
Log into your plan and download a detailed fee report
Understand how you’re charged: Are you charged per participant or as a percentage of assets? What fees are normal vs extraordinary?
Compare fees: Compare the fees you're paying to industry benchmarks.
2. Review Your Plan's Investment Options:
Evaluate expense ratios: Compare the expense ratios of different investment options within your plan.
Consider index or target date funds: These funds may have lower costs. For a detailed review of Target Date Funds, please refer to the Department of Labor’s “Target Date Retirement Funds: Tips for ERISA Plan Fiduciaries”
Monitor investment performance: Ensure that the investments in your plan are performing well and are in alignment with your Plan Document.
3. Analyze Plan Administration Costs:
Review service provider contracts: Examine the terms of your contracts with service providers to understand the fees they charge.
Consider alternative providers: Shop around for potential cost savings.
Optimize administrative processes: Look for ways to streamline administrative tasks and reduce costs.
4. Utilize Fee Benchmarking Tools:
Use industry benchmarks: Compare your plan's fees to industry benchmarks to identify areas for improvement.
Consider third-party advisors: Financial advisors can help you assess your plan's fees and identify potential cost savings.
5. Regularly Review and Rebalance:
Monitor plan performance: Ensure that your plan is meeting its investment objectives.
Rebalance investments: Adjust the asset allocation as needed to maintain your desired risk level.
Evaluate plan design: Periodically review your plan's design to ensure it remains effective and cost-efficient.
For a detailed review of these items, please refer to the Department of Labors, “Meeting Your Fiduciary Responsibilities”