Fees Matter
It is a common practice to calculate recordkeeping and advisory costs of 401k plans as a percentage of the plan’s assets. These costs are often hidden within the plan’s investment offerings which obscures the true cost to operate the plan from both the plan sponsor and the participants. As the plan’s assets grow, future fees grow as well which may restrict future growth in the participants’ accounts.
We believe that service providers should be compensated reasonably but should not benefit from the usual future growth in plan assets due to investment earnings and participant contributions. We only partner with service providers who determine their fees based on participant headcount. As the plan’s investment advisor, we determine our fees at initial engagement and freeze them for the remainder of the engagement.
Excessive fees paid by 401k plans do one thing only – restrict growth in participant account balances. We believe that plan participants deserve great service and low cost fixed fees.
Why we focus on reducing 401k plan fees
This chart compares future recordkeeping and advisory fees assuming they are determined as a percentage of assets versus our fixed fee approach.
As plan assets grow in the future, recordkeeping and advisory fees increase under the first approach while our fees remain stable.
We believe that the future growth in fees is often unwarranted and robs participants of important additional growth in their accounts.
Using our approach, participants keep more of what they saved for retirement.
The Difference between Fixed and Asset-Based Plan Fees
Assumes $2,000,000 in starting 401k plan assets, 40 plan participants, annual 401k plan contributions of $100,000 and 3% expected annual asset return. This is a hypothetical example and is not representative of any specific situation. Your results will vary.
FixedFee401k could have saved this plan over $72,000 in fees over a 10 year period.
Would a participant rather have $227,000 or $163,000?
A 1% difference in total fees and expenses would reduce your account balance at retirement by 28%.
Individual Plan Assets Accumulation
Over a 35 year period.
“A Look At 401k Plan Fees”, U.S. Department of Labor, Employee Benefits Security Administration. This is a hypothetical example and is not representative of any specific situation. Your results will vary.
| 1% Difference in Account Fees by the Numbers | ||
|---|---|---|
| Fees and Expenses | 0.5% | 1.5% |
| Net Annual Investment Return | 6.5% | 5.5% |
| Balance at Retirement | $227,000 | $163,000 |
| Assumptions | |
|---|---|
| Years until retirement: | 35 |
| Starting 401k Balance: | $25,000 |
| Assumed annual investment return: | 7% |