When choosing a 401k program, plan administrators should consider the fees associated with the plan, which fall into three categories: plan administration fees, investment fees, and individual service fees. Employers cover plan administration fees, while investment fees are deducted from employee returns, and individual service fees are charged on a per-use basis. It is important to research different rates and select the best investment options and additional services for employees.
One of the most important factors that can help plan administrators choose the best 401k program to offer employees is the fees associated with the plan. While some plan fees are standard regardless of plan provider, others can vary greatly. These 401k fees will generally fall into one of three categories which include plan administration fees, investment fees, and individual service fees. Some fees are paid by the plan or employer, while others are paid by employees.
The 401k fees charged by the plan administration cover the widest range of services offered. They include charges for bookkeeping, compliance testing, and record keeping on behalf of the plan. These fees may also cover the cost of customer service and technical support available to both plan administrators and employees. Optional costs that may be included in plan administration fees may also cover any employee education and training programs, as well as promotional plan materials such as enrollment forms, explanation of benefits brochures, and general plan information packets . The employer covers the plan’s administration fees, although a portion of the cost may be passed on to employees as part of their investment fees.
Investment fees in a 401k plan comprise the largest percentage of all applicable 401k fees. They consist of percentage-based fees charged to the employee based on their investment options. The fees are designed to handle investment management, primarily those costs associated with employing fund managers, as well as any trading costs associated with asset allocation changes. Investment fees are often deducted from any dividends or investment returns the employee receives from their 401k plan investments.
The final category of 401k fees is made up of individual service fees. These are strictly employee-based fees charged on a per-use basis for various plan benefits. They may include the flat fees charged for 401k loans, as well as charges that may be incurred from frequent reallocation of assets. Investment advice is also a common offering to employees that may incur charges separate from the standard plan fees. Service fees may also be charged to employees who choose to invest their 401k funds in options that are not part of the plan’s standard offerings.
Plan administrators will often choose plan providers based on their 401k fee structure. Although the employer may be passing a portion of the fees on to employees, it is still your responsibility to select the plan that is most beneficial to the company and its employees. It is the employee’s responsibility to research the different rates and select the best investment options and additional services for his or her money.
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