Retirement plan fees have garnered increased attention in recent years due in part to a growing number of lawsuits filed against employers. Since 2020, more than 170 excessive fee suits have been filed in the U.S., leading to tens of millions of dollars in settlements.
Among other allegations, plaintiffs in these cases often charge that participants were made to pay unreasonable fees on their 401(k)s, which compromised their retirement savings. But fees can range — depending on the plan design and investment lineup — and it can be unclear what exactly is “reasonable.” So how do you determine where fees should fall, and what tools can help you make that assessment? Here are answers to these and some other common questions about retirement plan fees.
1. What does “reasonable” really mean?
What makes a fee reasonable depends on a number of factors, including market trends, which can change over time. But the plan’s design, investment menu and features determine the reasonableness of fees as well. Typically, higher levels of service, such as financial wellness programming, one-on-one financial advising, 3(21) or 3(38) fiduciary services and more frequent participation in committee meetings come with higher fees than a more bare-bones offering. Whether or not a fee is reasonable is a question that always must be considered in context.
2. Are low fees always best?
In the retirement plan industry’s highly litigious environment, it may seem like the lower the fees, the better — no matter what. But this may not be true if the plan lacks needed features or services for participants or the employer. Ironically, one recent lawsuit accused a plan of having fees that were too low at the expense of potentially higher investment returns. And fees that don’t provide commensurate value to the plan should always be considered too “high” no matter the cost.
3. How frequently should I benchmark?
A plan’s fees should be benchmarked at least annually. However, if the plan undergoes significant changes, additional benchmarking can help make sure fees haven’t crept up relative to those of similar plans. A merger, downsize or any other noteworthy change in the number of participants or size of a plan could merit a change in fee structure. Especially as a plan grows, it may be able to take advantage of preferential share classes or more competitive rates available from service providers.
4. Are there tools to make benchmarking faster and easier?
Traditional benchmarking can be time-consuming, but PlanFees offers an entire suite of tools to streamline the process based on the needs of your clients. With Prism Total Fees Benchmarking, you can get actionable fee range data in under two minutes. These reports let you quickly see if fees are low, average or high compared to similar plans with only a few data points. Prism365 offers fee benchmarks specifically tailored to the scope and frequency of advisory services.
5. Can I get real quotes without putting my plan out to bid?
Yes! With our latest offering, RFP Express, you can instantly receive up-to-date fee data, as well as actual quotes from top providers, and receive custom pricing in 24 hours — without the hassle of a cumbersome live bid process. This revolutionary tool gives you more real-time data than other reporting solutions but requires only a fraction of the time and information needed for a three-to-five-year live bid.
Fee Clarity and Confidence
PlanFees benchmarking tools can give you the accurate and actionable insights you need to deliver better outcomes to plan sponsors and participants — as well as help you build your book of business. Contact us today to expand your benchmarking toolkit, so you can have answers to your fee questions whenever you need them.
Benchmark better with PlanFees.
