With a new year under way, plan fiduciaries may be shopping proposals to be sure that employees are getting the best retirement plan choices possible for the lowest fees. And while plan providers must disclose investment fees to clients, the fees do not have to be completely revealed in the proposal stage. Below are 4 ways to prevent fee surprises in the future for new plan offerings.
1. Request a disclosure from the provider regarding the method that fees are determined.
2. Ask if changes to investments can be made without approval from the plan administrator with full fee disclosure.
3. Beware of fees associated with managed accounts. You may elect to have the retirement plan accounts managed by a third party working directly with employees. However, the investment fees may be lower as a result. The appearance may be that the cost is significantly lower (due to reduced investment fees), but the cost may be higher in the end.
4. Ask about the use of target-date funds or proprietary funds. If these are part of the package, then ask for a breakdown of investments or a document of investment philosophy to be better able to predict the fees. Having a mix of passive and active index funds can hide fees.
In writing the warnings about fees, I want to be careful not to imply that any of the proposal tactics are deceptive. Fees are both inevitable and legitimate. However, when you look at several proposals, the calculations will likely all be based on different assumptions. Knowing the questions to ask and the different ways funds are presented makes you a better fiduciary for your retirement plan.