By Ed McClure, CFP®, PPC®
As they pass by, the years tend to blend together, which can make it challenging to remember specific details. What we remember happening in 2016 could very well have occurred in 2018 or 2019. Even significant events in our lives can sometimes become hazy over time. Keeping a to-do list may help, but we all experience moments when we fall behind.
The same can be true of our financial plans if we don’t stay on top of them. As a plan sponsor, you carry a large responsibility in offering retirement and healthcare plans to your employees, and we understand your desire to provide plans you can take pride in.
As you think about fulfilling obligations for your employees, you must act in their best interests, manage their accounts diligently, and make informed investment decisions to support them in caring for themselves and their families. As a sponsor, it’s important to recognize that higher plan fees may lead to reduced contributions from employees. For this reason, reviewing your plan fees is critical to make certain your employees can rely on you to support their retirement savings efforts. By taking the time to review your plan, you can enhance the overall value of your sponsorship and empower your employees to build a stable financial future.
How Often Should You Review Your Plan Fees?
While some suggest reviewing your plan fees every two to three years, I believe an annual review is wise. Because lawsuits surrounding 401(k) and 403(b) plans have risen in recent years, it’s best to take a proactive role in monitoring plan fees to ensure they can clearly show a prudent review process is followed.
Plan sponsors should look over their plan fees on a periodic basis for a few reasons:
- You have a fiduciary responsibility to monitor plan fees and verify they are “reasonable.”
- If you have higher fees, be able to explain why you wouldn’t go with a less expensive alternative.
How Should You Review Plan Fees?
When beginning your review of your plan fees, start by looking at what you currently charge your employees to maintain their retirement accounts. Although plans can have varying types of fees, the two most common are the investment and administrative fees.
The investment fee is one of the most significant retirement plan expenses, but there’s an upside. This fee is usually charged as a percentage of your employee’s assets invested, meaning that the fee is justified by how much money they have invested. Overall, this fee is what is paid to manage their investments in the 401(k) plan. This fee will vary based on the type of investment management approach (i.e., passive vs. active and domestic vs. international), but it is important to benchmark these fees to their appropriate peers.
The administrative fee is charged to pay service providers who ensure the plan is running smoothly. This includes paying recordkeepers, accountants, and legal services who can protect you as the sponsor and your employees. This can either be charged as a flat dollar amount, as a percentage against their total assets invested, or a combination of the two. Evaluating which fee approach to use for your plan is an important fiduciary decision and should be discussed and documented.
As the plan sponsor, it’s up to you to determine whether one or both of these fees are reasonable. Additionally, there are several online resources that can help you compare your plan, but you should always consult with a fiduciary consultant or advisor who understands your position as a plan sponsor. Speaking with a professional about your plan fees can offer a different perspective so you can better help your employees retire well.
We Can Ease Your Burden
Collaborating with a seasoned professional is a decision that not only supports the plan for your employees’ futures, but one that also takes the burden off your shoulders. Our mission at McClure Wealth Management is to create and execute the ideal retirement strategy tailored to your needs. We take pride in providing top-notch support, clear communication, and dependable services. Our team strives to adhere to the best fiduciary practices, making sure your employees have access to the best investment options. For plan sponsors like you, our well-documented fiduciary process helps manage the risks associated with plan sponsorship, providing you with confidence and ease.
If you’re ready to speak to a professional that keeps you at the forefront of our mind, give me a call at (760) 607-0611 or email [email protected] to set up a consultation.
About Ed
Ed McClure is a CERTIFIED FINANCIAL PLANNER™ practitioner, Professional Plan Consultant® (PPC®), and founder of McClure Wealth Management. With over 25 years of experience, Ed works with business owners who want to maximize their retirement plan benefits, businesses that need help setting up and managing a 401(k) for their employees, and families who want guidance while planning their futures. He is known for simplifying complicated and intimidating topics and making wealth management concepts easy for others to remember and understand.
Ed has established himself as a trusted resource for business owners and individuals, and his mission is to help his clients achieve the financial independence and well-being they deserve so they can give their time and energy to the people and things they love. He has a bachelor’s degree in finance from the University of Illinois. In his spare time, Ed conducts financial workshops for the Just In Time for Foster Youth organization, which helps equip young men and women as they come out of the foster care system. He also loves to travel and spend time with his favorite people. To learn more about Ed, connect with him on LinkedIn.