Whether it’s a streaming subscription you forgot to cancel or a coupon you let expire before you could use it, nobody likes to find out they could’ve paid less than they did. And while a forgotten Netflix account might rack up a few extra dollars each month, excessive retirement plan fees can put participants — and the plan sponsor — in jeopardy. One recent study shows that a staggering 80% of plans are paying higher fees than they should.
The Benchmarking Gap
In October, Abernathy Daley 401K Consultants released the results of a study of 50,000 retirement plans in Texas. Based on an in-depth analysis of Form 5500 filings, the study included both 401(k)s and 403(b)s. The results showed that approximately 80% of sponsors had plans with excessive fees — most of which had not benchmarked their plan in at least three years.
Although the study focused exclusively on plans within Texas, Steven Abernathy, Principal and Chairman of Abernathy Daley 401K Consultants, suggests that this trend likely mirrors patterns observed across the U.S. These under-benchmarked plans ultimately impose long-term costs on participants and may expose plan sponsors to significant fiduciary risk.
Small Increments, Big Impacts
Even a small fee difference can make a big impact on participants' ability to build their retirement accounts over time. For example, an initial balance of $500,000 can grow to $1,279,596 over 15 years with a .5% fee, assuming a 7% annual return. With the same rate of return and time frame, the balance would only be around $1.1 million in 15 years if the fees rose by just one percentage point. But the risks of high fees don’t just fall on participants — excessive fees can leave sponsors and advisors open to costly and drawn-out litigation.
Benchmark Often — and Better
The best way to stop litigation and snowballing fees before they start is to benchmark early and often. Many experts recommend benchmarking plans at least once per year. But more frequent benchmarks mean more opportunities to find places to save, and more documentation of your fiduciary process should an excessive fee case arise.
Leveraging the power of PlanFees’ suite of benchmarking tools on a regular basis can help ensure reasonable fees for participants and mitigate sponsors’ fiduciary risk. Prism Total Fees Benchmarking offers a quick, 2-minute fee checkup, allowing you to quickly compare similar plans and find out if your fees are low, average, or high.
For a more in-depth analysis of advisory fees, Prism365 compares fee ranges for 15 advisory services and frequencies across 5 key performance areas. And RFP Express delivers real-time quotes from top providers within 24 hours.
In a retirement landscape where 80% of plans overpay, setting yourself apart isn’t just smart — it’s essential. With PlanFees, you can provide an accurate, custom benchmark faster and more easily. Elevate your fiduciary game with PlanFees.
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