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Where can I find information about 'average' advisory and/or administration costs on 401(K) plans?

Jul 02, 2014 by Stephanie from Charlotte, NC in  |  Flag
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Hi Stephanie,

You can find 401(k) plan fee information in the “401k Average Book”. It retails for $95 but I believe you can find it on Amazon for less.

The book doesn’t do a great job of separating out Advisor fees. It provides investment fees from which many advisors are paid. For example, a mutual fund in your plan may have a total expense ratio of 1.25% and your advisor may be receiving 0.50% of this total fee. So it’s tough to benchmark what brokers and insurance agent advisors get paid. Advisors who work for a Registered Investment Advisor firm will typically not be paid from the investments in the plan but from the plan itself. So their fee will be very transparent. And since they are not receiving compensation from the investments you can safely assume they are only recommending the investments because they believe they are in the plan’s best interest.

When you review plan fees you must always consider the service level being delivered. Plan Fiduciaries have a responsibility under ERISA to determine if plan fees are “reasonable”. Reasonable does not mean cheap and it does not mean average. Reasonable is determined by the Fiduciary. The Fiduciary must adopt a process for determining reasonableness and the decision and process must be documented (or it never happened). You may determine your plan is paying more than the ‘average’ of a similar size plan but if you are receiving above average service you may conclude the fee is reasonable.

Hope this helps.

1 Comment   |  Flag   |  Jul 02, 2014 from Woodbridge, VA
Stephanie

Thanks!

Flag |  Jul 02, 2014 near Charlotte, NC

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Stephanie, also do not forget that the regulations were specifically changed in the last few years because the Department of Labor determined that the retirement plan fees in the US are too high. This means that any average you look at is going to give you a false sense of relief if your plan falls into the average. The best way to determine reasonableness is to get bids from providers that service your plan demographic. In other words, an RFP (Request For Proposal) will let you know what a competitive cost is for your plan.

1 Comment   |  Flag   |  Jul 02, 2014 from Austin, TX
Todd Kading, CFP®, ChFC®, RF™

Also, if you want to know what the Book of Averages says about your plan, just ask. I am happy to look it up for you.

Flag |  Jul 02, 2014 near Austin, TX

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Stephanie, these costs, both advisory and administrative, can vary widely based on the special circumstances of the group; average account balance, total assets, number of locations, plan design, special service issues, etc

Comment   |  Flag   |  Aug 20, 2014 from Delray Beach, FL

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