Get the most out of your Inc. online experience by registering and joining the Inc. community today. Get access to all Inc.com content and priority invites to free Inc. networking events in your area.

Login using:


Or login directly through Inc.com

Figuring Out the Fees

 

Fees for 401(k)s are a hot issue right now -- participants are suing, regulators are tinkering with the rules, and Congress is considering a rewrite. It's a complex topic, but suffice it to say: Don't believe it if an adviser says his services cost nothing -- you're paying for it, one way or another. Here's a breakdown of the fees to watch for.

MUTUAL FUND FEES Hidden fees are especially common among fund companies competing in the small-business market. They embed administrative fees in the fund expense, for instance. When insurers wrap funds in annuities, they add features -- including a guaranteed income option and an easy annuity rollover -- but often layer extra fees on top of the usual expenses. And brokers collect commissions, which fund companies recover by selling a share class with higher expense ratios.

UP-FRONT VS. EMBEDDED FEES Retirement-plan consultant Shelton urges clients to avoid embedded costs and arrange up-front fees when possible. Company owners ultimately pay that expense, either as the plan's sponsors or as its leading participants; better to take it as a tax deduction than to have it eat away at investment returns.

ADVISER AND ADMINISTRATOR FEES Investment advisers generally charge fees as a percentage of plan assets; figure a quarter of a percent to 1 percent of assets, depending on the services offered, and more if they're taking on an administrative role. Third-party administrators typically charge a base fee of about $1,000 plus $25 to $35 per participant. Sometimes those fees are partially offset by commissions paid by the fund companies to the plan administrators.


Sign-up for our Innovation Newsletter