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401(k) Plan Fees - Overview

By Justin Pritchard, CFP® and Craig Ciarlelli, ChFC, AIFA

401(k) plan fees cover a variety of services and come from a variety of places.Once you know how they work,you'll know what you pay and what you get for the money. This page covers the most common 401(k) plan fees, including costs that are often difficult to find.

Who Pays 401(k) Plan Fees?

There are a few ways that 401(k) plan fees are paid. All plans are different, so the specifics will vary depending on your company. In some cases, employers cover most of the costs; in some cases costs are passed on to employees.

  • Asset based fees come out of investments. Essentially, plan participants pay these fees as they're deducted from retirement savings. These fees are often invisible to employees because they are baked into investment expenses or they are not visible as line-item transactions.
  • Individual participant feesare charged to participant accounts. These fees appear as transactions on participant statements along with a description of what's being paid for.
  • Employer-paid fees are paid by the employer, often by writing a check. Employers agree to cover these costs so they are not charged to participants.

What do 401(k) Plan Fees Cover?

401(k) plan fees cover a variety of services needed to run a 401(k) plan. Retirement plans are required to follow certain rules, so they can be more expensive than other types of investment accounts -- even individual retirement accounts (IRAs). In general, 401(k) plan fees go towards the following:

  • Plan administration- the process of designing, launching, monitoring, and terminating 401(k) plans. Plan administrators are responsible for developing a plan document that lays out the plan's rules. They also make sure the plan follows its own rules and any relevant laws.
  • Investment management - handling plan assets. They invest in stocks, bonds, and other instruments. Most 401(k) plans use mutual funds for this service.
  • Recordkeeping- tracking plan assets. They account for how much you have, and what type of money it is (pre-tax, after-tax, employer matching, etc).
  • Financial advice- help with plan investments. They are often a primary point of contact on small retirement plans, spending time with employers and plan participants and acting as an intermediary and translator between other service providers.
  • Consulting and other services - 401(k) plans are complex, requiring specialized skills and guidance to keep the plan in good working order and to avoid taxes and penalties.

Sometimes it's hard to tell who provides the services above. In some cases, one party may take on more than one duty (for example, recordkeeping and administrative services may be provided by different departments within a single company).

Follow the Money

It can be difficult to tell where 401(k) plan fees go. When money is deducted from plan assets, who gets paid? It could be a Third Party Administrator, a financial advisor, or a combination of the parties involved with your plan. Unless everything is transparent, you won't know. Rules are changing so that it's easier to understand how much you pay and where the money goes; with this information, you can decide if you're getting a fair deal.

Employers have some choice on how 401(k) plan fees are charged. They can pay everything out of pocket as a cost of doing business and providing an employee benefit. However, most employers -- especially small ones -- pass at least some of the cost on to employees. Asset based costs are generally higher when employees help pay 401(k) plan fees.

Justin Pritchard is not affiliated or registered with Cetera Advisor Networks LLC. Any information provided by Justin Pritchard is no way related to Cetera Advisor Networks LLC or its registered representatives.