For the last 30 years or so, the retirement industry at large has done a good job at hiding or complicating fees so that only the savviest of investors have a chance at finding them. In recent years, government regulations have been approved in an attempt to bring more transparency to fee disclosure. Yet still, the total cost of the retirement plan is still unclear to many plan sponsors and retirement plan committees. Even those of us that work in the industry often times find it difficult to decipher the disclosures that were intended to bring transparency.
So you have the disclosure, now what? Here are 5 questions you need to ask your provider about plan fees:
1. What specific amount of the disclosed “investment” or “fund” expense is being retained by you, paid to my advisor or third-party administrator?
2. My plan has a guaranteed interest contract or stable value account and the expense is shown at 0%. That doesn’t seem right. What specific amount of revenue do you earn from this investment? (Often times this is paid as a “revenue sharing payment” from the provider or there is a difference between the interest earned and the interest paid that the provider is retaining commonly referred to as “interest rate spread”.)
3. What payments do you receive from mutual fund companies to allow the fund on your platform? (More and more providers are requiring mutual fund companies to pay a fee to allow funds on their platform. One could argue that this limits the investment universe only to those companies willing to pay the premium.)
4. Do you receive revenue sharing and sub-TA payments and how is that disclosed to us? Can we have these amounts credited back to the employee accounts that generated the revenue?
5. How do my plan investments impact other fees, such as recordkeeping or plan administration fees? For example, if we choose a different Target Date Fund suite or choose to use low-cost index funds, how, if any, will my other plan fees be impacted?
Understanding the complexities of the fees for your retirement plan can be a challenge. If you find yourself lost in the footnotes of your disclosure, an experienced retirement plan advisor can help you navigate and understand the total cost and benefits of your retirement plan and ensure you have the right plan for your employees. Since our inception over 30 years ago, transparency has been at the core of our business. At American Trust, we fully disclose all fees and have been doing so before fee disclosure was a government regulation.