Issue: Paying higher-than-average administrative costs for your organization's 401(k) plan.
Risk: Smaller companies unwittingly shell out bigger fees.
Action: Don't take 401(k) fees at face value; shop around and renegotiate them each year, using the numbers below.If you're a smaller organization and haven't thought much about your 401(k) plan's administrative costs in a while, it's time that you should. New studies show that 401(k) plans run by small businesses pay far more in fees than larger companies.
Employees at companies with 50 or fewer employees pay an average 1.4 percent of their assets in fees, or about $14 for every $1,000 invested, according to consulting firm 401(k) Association. That compares to 1.07 percent for large plans. But some fee structures for small plans can run as high as 3 percent or more.
Advice: Weigh your organization's 401(k) plan fees against these plan-fee guidelines, cited by 401khelpcenter.com:
- For a full-feature 401(k) plan, administrative fees should typically run between $100 and $200 per participant per year.
- Most employers pick up the costs of the administrative fees. Many mutual fund companies are willing to waive sales charges, known as loads.
- Total fees and expenses should be less than 1 percent of your account balance.
Final tip: After negotiating a better deal with your 401(k) provider, document your savings in a memo to the higher-ups.
- See 401(k)HelpCenter.com's section on understanding and cutting fees at www.401khelpcenter.com/cw/cw_planfees.html.
- Find the U.S. Labor Department's guide to 401(k) fees at www.dol.gov/ebsa/ publications/401k_employer.html.