No More Hidden Retirement Plan Fees

Post by Pentegra Retirement Services

Fees and expenses are part of every retirement plan but some people have no idea how those fees work, who is paying them, and how much they actually cost.

This summer, the U.S. Department of Labor (DOL) will require retirement plan administrators to provide more information about fees and expenses associated with their plans. The purpose of the new regulation is to provide greater transparency and make sure participants and beneficiaries have the information they need to make informed decisions about the investment of their plan accounts, and know exactly what they are paying for and why.

According to retirement plan expert Rich Rausser, Senior Vice President of Client Services at Pentegra Retirement Services, “Some people think their employer pays their plan costs, but when they receive disclosure information under the new law, they may learn otherwise. Those who do actually realize they pay some plan costs may be concerned when they receive disclosures showing how those fees reduce their plan accounts.  We anticipate this may present some eye opening information that should have been clear all along.”

All plan sponsors have a fiduciary responsibility to ensure that a retirement plan is operated in the best interest of participants. A critical part of that includes evaluating plan fees and expenses and determining if plan costs are fair and reasonable. Ultimately, plan costs can impact returns for participants and the amounts that they accumulate for retirement. The new rules are designed to simplify the process so plan sponsors and participants can compare costs and determine if the applicable fees represent good value for the services being provided.

Here are three important questions you should ask:

What are the different types of plan fees and expenses that may impact you?

  1. One-time Fees: Plan set-up and conversion expenses are examples of one-time fees. The fees are typically paid by the plan sponsor and cover the cost of establishing a plan or transitioning a plan from one provider to another. Plan set-up or conversion expenses may include installation fees, enrollment expenses, contract and service termination charges, initial plan design and document drafting fees.
  1. Ongoing Fees:  These cover the costs of day-to-day administration of the plan. Account maintenance, recordkeeping, custodial and trust fees are examples of ongoing fees. Continuing fees also include the costs for special services over the life of a plan, such as legal and compliance services, plan audits, ongoing plan design and document maintenance work, and plan communication and education services. These fees may be paid by the plan sponsor, the participant, or both, depending upon the relative benefits obtained by the sponsor and the participants with respect to the expenses.
  1. Investment Fees:  Investment management fees are the fees charged for managing a retirement plan’s investments. These include the management, operations, and marketing of investment funds. There may be fees charged when a fund is purchased or at the time of sale, such as front-end or back-end loads, fees to cover annual marketing or distribution costs, such as 12(b)-1 fees or fees charged for insurance products, such as wrap fees. These are typically paid by the participants and can vary significantly from one fund to another based on operating complexities.

How are the different types of fees assessed?

  1. Asset-based: Based on the amount of assets in the plan and generally are expressed as a percentage or in basis points.
  2. Per-person: Based on the number of eligible employees or actual plan participants.
  3. Transaction-based: Based on the execution of a particular plan service or transaction. A participant loan origination fee is an example of a transaction-based fee.
  4. Flat rate:  A fixed charge that does not vary, regardless of plan size. Fees may be calculated using one or any combination of these methods.

Who actually pays plan fees?

A qualified plan must be maintained for the exclusive benefit of the participants and beneficiaries. Therefore, plan expenses that generally benefit the sponsor are considered settlor expenses and must be paid by the sponsor. Other types of reasonable expenses that are for the benefit of participants and beneficiaries may be assessed to the plan (if not otherwise prohibited by the plan document). With proper notice, a fee for a transaction that benefits a particular participant may be assessed to the participant.

Pentegra Retirement Services is a leading provider of retirement products and services to financial institutions and organizations nationwide. Founded by the Federal Home Loan Bank System in 1943, Pentegra offers a full range of retirement programs. For more information, go to

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About LoveBeingRetired

Dave Bernard is a California born and raised author and blogger with an extensive 30 year career in Silicon Valley. He has written more than 300 blogs for US News & World On Retirement and his personal blog Retirement – Only the Beginning. He has authored three books: "Are you just existing and calling it a life?"; "I want to retire! Essential Considerations for the Retiree to Be"; and " Navigating the Retirement Jungle". Dave was also a contributing writer for the books 65 Things to do when you Retire (“Positive Aging – Old is the New Young”) as well as 65 Things to do when you Retire – TRAVEL (“Travel to Discover your Family Heritage”). He lives in sunny California with his wife, his Boston Terrier "Frank" and a passion for the San Jose Sharks.