As a small business owner or manager, you probably know exactly how much you spend a year on the building or office space where you run your company. You likely also know what you dole out in salary and probably have some idea of what you spend on office supplies and equipment.
You might also be aware of your costs for common HR expenses, such as health benefits. However, do you know what you pay in 401(k) plan fees? If you answer this with “I don’t pay any fees,” you are likely wrong. You are also not alone.
There are costs associated with the investment management and plan administration within a 401(k) plan that are generally passed back to the participants to pay. However, far too often, these participants have no idea they are paying these administrative costs. My goal in this post is to inform you about the costs you may unknowingly be paying and to educate you on the process.
The intent of these notices was to draw more attention to plan fees but the impact to date has been lukewarm. Many employers have not taken the time to understand the notices and not all provider notices are easy to understand.
This lack of understanding of 401(k) rules has been great for employment attorneys. There have been over 100 lawsuits filed by employees who have sued their employer over excessive 401(k) plan fees. While many employers are paying large sums to settle out of court, Tibble v. Edison International actually made it all the way to the U.S. Supreme Court before receiving a ruling in favor of the employees. If nothing else, this should be a wake-up call for employers that they need to understand their plan fees and perform their due diligence in this area
If you offer your employees a 401(k) plan, you must take the time to:
Failure to take action in this area could end up being costly. Hiring a professional employer organization is an excellent move toward managing your retirement plan for compliance and transparency. TriNet clients, for example, have the ability to participate in the TriNet 401(k) plan through Transamerica. Under this arrangement, TriNet serves as the plan administrator and assumes fiduciary liability around plan administration, including the monitoring of investments and plan fees. TriNet is responsible for performing due diligence to demonstrate and document that plan fees are reasonable. With economies of scale in play, the investment and administrative fees in the plan are generally lower than what clients would get if they were able to sponsor their own plans.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.
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