Are You Paying Too Much?

Over the long term, even a small difference in fees can translate into a big difference in a retirement account balance and as a plan fiduciary, plan sponsors must act solely in the interest of participants and their beneficiaries. Therefore, it is imperative that plan sponsors understand all fees that are being charged and how those fees affect performance.

Plan Administration Costs
Plan Administration Costs include the everyday operating expenses of a 401(k) plan. Some of these services include:

Producing statements;
Providing a toll-free number and web site;
Compliance testing;
Form 5500 preparation; and
Contribution processing.

A record keeper can charge for these services in several different ways but the most common arrangements are a charge per-participant, an asset based fee, or a flat rate.

Investment Expenses
Investment expenses are typically the largest component of 401k plan fees and are attributable to the investment management fees charged by mutual funds. These costs are usually displayed as an indirect charge on your account because they are deducted directly from your investment returns. For many unwary plan participants, indirect often means hidden.

Mutual funds typically charge:

management fees paid to the mutual fund advisor;
distribution and service fees often referred to as 12b-1 fees that cover marketing the fund and compensating brokers for selling the fund; and
Sub-Transfer Agency Fees or shareholder servicing fees that can be paid to a record keeper for providing all the sub-accounting functions at the participant level.

Variable Annuity Fees

In addition to the types of fees previously described, an insurance company may offer products through a group annuity policy that essentially adds a variable annuity insurance fee known as a "wrapper" to the underlying mutual funds, resulting in an added cost. A variable annuity is a hybrid investment/insurance product that adds a mortality and expense fee that is charged on top of underlying mutual funds. As a result, it can be very costly to include variable annuities as part of your 401(k) plan.

We Can Help

Regardless of what you are paying now, at Tri-Star Advisors, we will work with you to minimize these costs. If your 401k provider or advisor is systematically using high cost funds or insurance products, please give us a call. We will be more than happy to look at your plan and provide you a free, no obligations cost breakdown and investment analysis.