As a financial planner, I see a lot of retirement plan description documents, and, as a professional, hopefully, I know how to wade through the unnecessary language and get to the information I need to help my client make an intelligent decision.
Recently, it’s become clear to me that the request for transparent expense information in retirement plans has fallen on deaf ears. If you are a new employee or new to the plan, here is what you may see in your Summary Plan Description about expenses:
Part Two: Administrative Expenses
Administrative expenses for such duties as recordkeeping, accounting, tax form preparation, and legal fees may be paid by the employer or by the plan. Your employer also has the option to be reimbursed by the plan for expenses they have paid. Fees paid with plan assets will be deducted pro-rata based on account balances and specified on your quarterly participant benefit statement (not bolded in the actual statement).
XXXX company charges both administrative and annual account fees for the services provided to the plan which may be paid either by the employer or by the plan. In the event your employer elects to have fees paid by the plan the fees will be deducted pro-rata based on the account balances and will be specified on your quarterly participant benefit statement. XXXX adminstrative expenses include monthly fees, per particpant fees, and set up fees. XXXX annual account fees are charged only when an employer elects to have concessions charged to the plan returned to the plan. Concessions are amounts paid by the funds in the plan to a third party, including XXXX, for services provided to the funds.
A one-time plan document restatement fee [what is a restatement fee?] of $400 may be paid by the employer or by the plan. Restatement fees paid with plan assets will be deducted pro-rata based on account balances and specified on your quarterly participant benefit statement.
In the event that the employer decides to transfer the plan’s recordkeeping services to a new service provider, there may be a plan transfer fee charged for services associated with the transfer process. The employer has the option to pay the expense with plan assets. If the expense is paid by the plan, it will be deducted on a pro-rata basis from all account balances, and the portion applied to your account will be reflected on your quarterly participant benefit statement.
The actual fee(s) for administrative expenses assessed against your account will be specified on your quarterly participant benefit statement.
It looks like the poor participant really has no idea if participating in the plan is a good value or not. It’s not clear what expenses will be passed through to participants. Too many fees (and mediocre funds) can offset a tax-deferral gain and this investor has no idea what he’s getting in to. Apparently, this new employee should simply start investing and then see what expenses appear on her first statement.
Employers and recordkeepers need to take a larger role in truly insuring that fees are clear when a new participant decides to join the plan. And employers, especially, should be their employees’ biggest advocate, providing clear, concise information on the retirement plan they are offering.