Retirement plan fees: are you on the right track?

Summer is not only time for cookouts and beach days, but as business owners and leaders, it’s also time for retirement plan reviews. These review conversations should include discussions of fees – something that may seem easy to brush off as standard and mostly static, but in fact, closely examining the fees makes a difference for your legal protection and your employees’ futures.

Fiduciary Responsibility

Fees may be more complex than a simple line-item in your corporate budget; if you type 401(k) lawsuits into a Google search, you can read countless stories of ligation brought by either excessive fees or inappropriate investment options.

Business owners who sponsor plans must manage their fiduciary responsibilities, including administrative support, selecting and monitoring service providers, plan design and management and participant communication. In the context of ERISA, the Employee Retirement Income Security Act, a federal law protecting individuals, plan fiduciaries must act in the best interest of plan participants and beneficiaries. This includes creating a culture of monitoring the plan fees on a regular basis to ensure that they are reasonable for what the plan is receiving.

Fee Benchmarking

Fee benchmarking is an important piece of the 401(k) governance process. Each year, the U.S. Department of Labor requires every 401(k) plan to distribute an annual fee notice to plan participants. Fees can come in all forms such as the fund investment fees, investment advisory fees, and the cost to run the plan such as compliance or and custodial/recordkeeping fees. Unfortunately, 401(k) plans have ongoing costs, and there are many ways for those costs to take shape.

Fee structures

The most common method of charging for 401(k) plans is either direct or indirect fees for the plan participants. Direct fees to the participants, such as custodial/recordkeeping fees, administrative fees, and investment advisory fees, are typically paid via plan assets and are very transparent since they will be listed on fee disclosures and participant’s statements as a line item.

Mutual fund companies also withhold their fund fees or expense ratio from the performance of the fund, which would be indirect, as plan participants do not see them deducted on their statements. Some of these expense ratios are higher cost. These higher ratios provide a revenue share to offset the plan cost. Years ago, indirect fees were the most common in 401(k) plans, but over the last ten years the industry has shifted to the more transparent direct fee model.

Plan Adviser

There are many types of advisers providing business retirement plan services. Finding one that aligns with your company culture and your leadership style is key. Your adviser should act as the go-to for you and your employees/participants to help prepare you for retirement. Since business functionality and operations may look different now due to the pandemic, an adviser who focuses on employee engagement, employee enrollment, plan design, and virtual communications are part of the new normal. An adviser’s compensation should be tied to the value-added services they provide to the plan sponsor and participants. Trusted advisers walk hand-in-hand with plan sponsors to provide a tremendous benefit for their participants as well as making sure fees are monitored on an ongoing basis and benchmarked regularly.

Reviews and Changes

During an annual plan review, business owners and leaders should review their total fees with their advisor to make sure that plan fees are fairly aligned to the marketplace. If you are not sure if your fees are reasonable, the best practice is to benchmark your plan every three years.

The records-keeping industry has been very competitive over the last 10 years with much consolidation. When benchmarking your plan, have your advisor go to a few different service providers and provide a proposal for service to complete thorough due diligence. These proposals should include who will be the custodian for the assets, the types of investments available on their platform, and the participant education options available. Many record keepers are providing greater resources through technological advances at a much lower cost than even just a few years ago. The industry has also changed by moving from actively managed funds to passively managed funds, delivering lower overall plan costs. A quality advisor can gather the information and provide insights and analysis into what option may be the best fit for your company, comparing price, customer service, technology, and communication.

Examining your detailed fee structure as well as the investment options available to your participants can be important for your liability as a business owner. Knowing the changing trends in the 401(k) plan industry, how you can adjust to those trends to support your team, and ensure you have a retirement plan that works for you and your staff can help your company remain strong.

Steven P. Maher, CPFA, is a partner and senior wealth adviser at Domani Wealth.

Political changes, COVID pandemic to influence HR planning in 2021

Here’s what are the “best” companies to work for offering their employees today: paid time off for volunteer work, new hire referral bonuses, fitness facilities, telecommuting options and health care coverage that starts the first day, among other benefits.

These standards, among other human resources-based concerns, were hot topics at Central Penn Business Journal’s 2020 Human Resources Virtual Summit.

According to Peter Burke, president and co-founder of the Best Companies Group, a Harrisburg-based company, paid time off, remote work options, and health care benefits drive employee engagement by giving value to a company’s employees and responding to their modern needs.

Burke’s group surveys more than 700,000 employees at 6,000 workplaces across the U.S. and Canada, to identify and recognize the “best places to work.” Through these surveys, the company has found that the employees value employers who care what employees are thinking. They show this care by surveying their employees and using the results to make positive change, he said.

These companies also define a set of corporate values, Burke said, and communicate to their employees that they are valuable. One of the ways to convey that value to employees is by encouraging employee engagement and feedback, he said.

“Have you asked employees if people like the work that they do lately?” Burke asked. In fact, one of the top drivers of employee engagement is liking the type of work they do, he said. Another is having confidence in the leadership of the organization.

Doug Jones, president of Faulkner Subaru, a car dealership in Harrisburg, encourages employee engagement by offering his employees opportunities to participate in charitable events and help out in their community. This helps create a positive work atmosphere, he said.

“If you want your employees to be engaged,” Jones said, “you have to engage your employees. They will follow your lead.”

Earlier at the symposium, Catherine E. Walters, a partner at Bybel Rutledge, advised HR professionals to “buckle up,” for the ride ahead and the industry changes that will come with the change from the Trump to the Biden administration. Walters believes some changes made by President Trump made to employment regulations will be reversed by the Biden administration.

She also believes the low wages in certain industries, such as day care, retail work and apparel manufacturing, will continue to be a target of concern and possible reform.

Telework will continue to be a “hot topic” for HR managers in 2021 as well, Walters said.

“Telework became par for the course due to COVID,” she said. “It’s a good time to talk through remote workplace considerations…I don’t believe that (the telework) level will continue once COVID abates, but we won’t go back to our pre-COVID levels.”

Steven P. Maher, senior wealth adviser at Domani Wealth, a Pennsylvania-based wealth advisory service, advised employers to consider the generational needs of their employees when it comes to advising them on retirement plans.

Gen Z’s, Gen X’s, millennials and boomer employees, have different financial situations to consider, he said. Younger employees may not know where to go for advice on retirement planning while older employees might feel “stressed out,” not knowing when they can afford to retire.

Maher recommends employers hold meetings to educate employees on their options, with offshoot topics for each generation.