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Understanding 401(k) plan fees

Do you know if you're 401(k) fees are high...low....somewhere in the middle?

It's critical for plan sponsors to dig into the details of their recordkeeper’s fees, especially in light of the numerous class actions where plan sponsors and fiduciaries are being sued for operating a plan with allegedly excessive fees. You don't always have to select the least expensive provider, but you do need to make sure the fees are reasonable for the services provided. Some things to look out for include:

Fees that are disguised by being included with mutual fund expenses – – sometimes in the proprietary funds offered by your recordkeeper – – that are then kicked back to the recordkeeper. Make sure your provider has disclosed all such conflicts of interest.

Services that cost extra, since some providers will charge sponsors for things such as compliance activities and plan document reviews.

Fees that are reasonable in comparison with others. There's no way to know for sure whether a service provider’s fees are reasonable until you ask and shop around. You can do that by getting proposals from other providers or benchmarking their fees.

As a plan sponsor, you are required to understand all of the fees that are associated with your retirement plan. The most effective way to meet this fiduciary requirement—and thereby to protect the plan from an excessive-fee lawsuit by plan participants—is by engaging in a request for proposals every three to five years.

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