401(k) Plan Fees – There’s No Such Thing as a Free Ride

by Stacey L. Spencer, QKA | Manager, Employee Benefit Services Group

The retirement plan industry is overloaded with hidden fees and as a result, employers often think they are getting 401(k) administration for free. But in reality, the administration fees are concealed in the insurance contracts or mutual funds. This is a result of companies that offer "bundled services". A bundled service provider is when one vendor provides all investment, recordkeeping, administration, and sometimes payroll services. Bundled service providers are popular with small plans because their fees appear to be lower because administration fees are offset by higher investment management fees. Bundled services by their nature are priced as a package and cannot be priced on a per service basis.

New legislation will require that all fees are disclosed beginning January 1, 2012, but reputable firms should already be disclosing all fees. All fees should be transparent. Service providers should disclose fees and any revenue sharing arrangements in advance.

Another concern with bundled providers is the potential for conflicts of interest. Many bundled service providers are primarily interested in the management of assets and may place their own financial interests ahead of those of the plan sponsor or plan participants.

An alternative to bundled providers is to separately contract with different vendors for each service. Greenwalt CPAs partners with experts in the financial industry to provide a team approach. While we work together to provide cohesive service, we remain independent. Financial Advisors do what they do best which is provide sound, objective investment guidance and we do what we do best, provide technical expertise and accurate retirement plan administration. This model of separate service provides flexibility and assures unbiased service.

Retirement plan administration is complex and the consequences of making a mistake can be severe, not to mention costly. You need professionals who specialize in their respective fields to help you navigate the intricate maze of retirement plan regulations.