There are basically three different kinds of 401(k) fees and expenses. The first are investment fees, which are based on a percentage of the invested assets. These payments are deducted from the investor’s investment returns and are not specifically identified on investment statements. Next, there are basic administrative services fees, i.e. accounting and plan record keeping that can be superfluous.
There are also associated extra services – investment advice, daily valuations, and educational seminars – that can be costly but unnecessary. To eliminate those would help with cost reduction. Finally, there are individual service fees attached to particular plan features. The investor should be aware of these costs and make a decision whether or not the service is worthwhile to the cost, as you can receive large savings by not utilizing these individual services.
In addition to these expenses, there are also basic types of fees connected to investment alternatives. First, commissions or sales charges are transaction costs for purchasing and selling securities.
Next, management/ account maintenance fees are ongoing charges for managing investment assets, and they vary based on the investment. Some of these fees cover the aforementioned administrative expenses. Finally, there are other fees i.e. statements, record keeping, and contact information.
The best way to lower one’s 401k fees for cost reduction purposes is to contact your advisor and openly renegotiate service fees. Researching different providers and learning about their charges may help you get leverage when talking with your provider. You can cut some of the services and thus receive lower services fees with your same provider.
You can also talk with your plan administrator about every single charge so that you can uncover precisely what you are paying for and if it is necessary. Remember, your provider is working for you and does not want you to leave. Perhaps your funds are being actively managed, whereas passive management would be cheaper and worthwhile – this is a good method for cost reduction.
Perhaps there is a bundled program that would be partially subsidized by your employer that would necessitate fewer fees. Since plans with more total assets can potentially lower fees by using special funds or classes of stock in funds, then this is an avenue you’ll want to explore too.
What other ways have you found effective to help lower employee benefit costs?
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