Hello everyone and welcome to this month’s Ask the CFP® segment. This month’s question is, “How do I find my 401(k) expenses?
We all know there’s no such thing as a free lunch. 401(k) plans are no exception. While it’s easy to see the cost of a plane ticket or a bottle of wine, it can be harder to find the costs of a group retirement plan such as a 401(k). Generally, there are three types of expenses within a group retirement plan – administration expenses, advisory fees, and investment expenses.
Administration and recordkeeping expenses cover the cost of maintaining your retirement plan. This includes the plan’s website, customer service center, providing account statements, preparing educational materials, conducting compliance testing, etc. Advisory fees are usually paid to an advisor or a firm that’s in charge of maintaining a list of investment options available to plan participants. For example, if a mutual fund in the plan offers a new share class of the same fund and it’s available to add to the plan, it’s the advisor’s job to identify these opportunities. The advisory fee may also cover the cost of educational classes for participants, or the option to speak one-on-one with the advisor to ask questions.
Administration expenses and advisory fees may be paid by the employer or they may be shared with participants in the plan. It’s common for employers to pay part or all of these expenses, but that may not always be the case. If you want to research these expenses, search for what’s called the Annual Fee Notice on your retirement plan’s website. If you can’t find the notice online, ask your provider or your benefits department. Generally, the annual fee notice is required to be sent annually to everyone who participates in the retirement plan.
The final type of expense is investment expense. Investment expenses are not paid by employers. Instead, participants pay this expense depending on specific investments they choose for their retirement plan. Investment expenses generally aren’t itemized on retirement plan statements. You’ll need to research the retirement plan’s website or review the fund’s prospectus to find what’s called the expense ratio for each fund.
Remember, paying an expense for service is something people do every day, so expenses aren’t necessarily bad. An example is paying a restaurant for a nice meal and good service. Once you know your expenses for your retirement plan, you can use this information to help determine if any changes could be made to lower your cost or increase your value.
If you have any questions about this topic or a future video, please send it to tfreeman@monetagroup.com. Thanks for watching and we’ll see you next month.
© 2023 Advisory services offered by Moneta Group Investment Advisors, LLC, (“MGIA”) an investment adviser registered with the Securities and Exchange Commission (“SEC”). MGIA is a wholly owned subsidiary of Moneta Group, LLC. Registration as an investment advisor does not imply a certain level of skill or training. The information contained herein is for informational purposes only, is not intended to be comprehensive or exclusive, and is based on materials deemed reliable, but the accuracy of which has not been verified.
Trademarks and copyrights of materials referenced herein are the property of their respective owners. Examples contained herein are for illustrative purposes only based on generic assumptions. Given the dynamic nature of the subject matter and the environment in which this communication was written, the information contained herein is subject to change. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. Past performance is not indicative of future returns. All investments are subject to a risk of loss. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. These materials do not take into consideration your personal circumstances, financial or otherwise. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
