money-black-hole

It’s Even Worse Than I Think

I frequently write about the excessive fees in the retirement plans of smaller employers. However, even I still get shocked every once in a while with real life examples of how bad it is at some/most firms.  It happened again just this week.

A smaller employer (6 participants and between $500K and $1 Million in the plan) sent me an overview of new pricing options they had received on their plan.  Their plan has been in place for ten years and they want to reduce their costs.  The advisory firm that provided the comparison did a great job of providing a total all-in cost for each option in a relatively simplified format.

There were a total of seven firms presented.  Many are household names and all of them are well known in the financial services industry.  The costs were appalling, to say the least!  The total annual fees ranged from $9,600 to $17,300.  And believe it or not it gets worse.  Much of their costs, which should be fixed, are charged as a percentage of plan assets.  As their assets grow to $1 Million and beyond, their fees will keep growing, and growing, and growing!

Our proposal was for $3,600 a year.  This includes everything.  Full recordkeeping from an independent firm, trust services, an array of Vanguard funds, personal employee assistance and guidance, fiduciary support as a 3(38) and 3(21), etc…  The whole nine yards.  The advisory support would be provided by an independent adviser.  And since much of our proposal includes flat fees, their cost creep over time will be minimal!

Needles to say, this was an eye opening education for the plan sponsor.  They can’t get back the money they have paid in over the years but at least they can do something about it going forward. This new, lower cost option will help the employees keep tens of thousands of dollars in their accounts that would have otherwise gone to the financial services industry.  It’s a great example of how so many small employers overpay for retirement plan services.

How much do you pay for your plan?  How much could you pay?  

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