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Should You (The Employer) Pay the Administrative Costs of Your Retirement Plan?

No.  Unless…

For competitive reasons you decide to pay for the costs of the plan.  In your situation, it may not be enough to provide an employer match or contribution to the retirement plan.  If you pay for plan costs and promote your plan during the hiring process, learn how to articulate the value of your plan to prospective staff.   Otherwise, what’s the point?  

OR

You simply WANT to pay for the benefit for your staff.  You are nice about it! Nothing wrong this, is there?  If you appreciate the work your employees do and want to help them accumulate more towards retirement, paying for the benefit makes sense.  This does happen – in the real world. Many of our clients take this approach.  Once again, make sure you get the credit you deserve.

CAN YOU DO THIS?

If your service provider “bundles” its product offering together, this is not an option for you.  This is crappy! Bundling fees together might be sold as a simple, turnkey approach but this is nonsense.  It is lame and antiquated. Virtually all independent record keepers can provide unbundled retirement plan service options.  An unbundled product is simple to administer, provides more choice over how you pay for services, and better clarifies how each provider is performing.

This is your employees’ money – it’s their benefit.   Most of the assets are employee deferrals and the long term benefit of the plan accrues to them.  As such, you are certainly not obligated to pay for plan services.

BUT  

AND THIS IS A BIG BUT!

If you decide not to pay for services, ensure that your employees pay, at the minimum, reasonable costs for the plan.  And it would be better if your fees are much lower than average.  The average fees for smaller employers are awful.  Don’t compare your plan costs to industry averages.  Most small employers can reduce their costs by 50 to 75% WITHOUT ANY SACRIFICE IN THE QUALITY OF INVESTMENTS OR SERVICES.

Don’t feel obligated to pay for your retirement plan’s services.  But if you choose not to, don’t use over-priced services and an out-of-date provider structure that forces your staff to pay far more in fees than they should.   Your employees’ money should go towards their future and not the bloated financial services industry.

How does your plan handle this?  Do you know who pays for which services?

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