One of the primary duties of retirement plan advisors is to help ensure their clients’ fees remain reasonable. But between volatile markets, seismic shifts in American household finances, increased fee litigation and changes within the 401(k) industry itself, it’s become even more critical to keep a watchful eye on fees.
Here are a few of the factors currently putting pressure on participants’ portfolios — and retirement timelines;
In 2022, Americans’ average personal savings rate plummeted to just 2.3% of their income — the lowest seen since 2005. So they need all the help they can to prevent excessive fees from eating away at their retirement savings too.
Inflation is no doubt contributing to the savings crisis since workers have less to set aside for retirement after paying for household expenses. But inflation also puts increased pressure on participants when they get closer to retirement as they realize their soon-to-be-fixed incomes won’t go as far as they hoped. Advisors can help preserve future retirees’ spending power by ensuring reasonable fees.
Employers have to compete harder to attract and retain top talent in today’s job market. A retirement plan can help sweeten the pot for potential job prospects. Job seekers are looking for plans that offer attractive features, like a generous employer match, robust financial wellness programming and strong investment performance with low fees.
Retirement plan fees can compound significantly over time. A $100,000 investment, for example, could grow to $430,000 after 25 years without fees, assuming an average annual return of 6%. But with 2% in fees, this investment would grow to just $260,000 over the same period. Snowballing fees can eventually eat away a significant portion of participants’ portfolios and set back their retirement timeline.
In the past few years, the 401(k) landscape has changed. Some plans now offer much more diverse investment types than in the past, including ESGs, annuities and even crypto — with fees that may not reflect those of more traditional funds. For instance, while mutual fund fees are often below 1%, and can be as low as 0.1%, annuities can have fees of 2% or higher. And these fee differences could cost fiduciaries as well as participants, as evidenced by a recent uptick of excessive fee lawsuits with multimillion dollar judgments.
Benchmarking plans is one of the best ways to help ensure your plan sponsor and participants aren’t paying excessive fees. With PlanFees, you can increase your level of fiduciary oversight with our suite of innovative benchmarking tools that allow you to perform a fast, accurate annual benchmark in between three-to-five-year live-bid benchmarks:
Whether you need a quick check-in or an actionable quote, PlanFees helps you give sponsors the insights they need to protect participants — and themselves — from excessive fees.
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