Why Lower Fees are Important

Aside from the obvious benefit of saving your company money, lower fees also increase the retirement benefit to your employees and reduce the likelihood your company will be sued over the plan.

While a fee difference of 1% may seem insignificant, the higher fee can have a dramatic impact on employee retirement balances when they retire. As an example: assume the employee (including employer match) contributes $500 per month to their 401(k) and the plan earns a 9% average return over 35 years. With a 1% fee for the employees, the employee would have $1.15 million in their account at retirement. But if the plan charges a 2% fee to the employee, their account balance drops by a quarter million dollars.

This significant impact is one of the many reasons 401(k) lawsuits are on the rise. And sadly, many of the biggest 401(k) providers in the country are being sued by their own companies because of the high fees they charge in their retirement plans. Even as your adviser is telling you how great their company’s 401(k) offering is, they may be suing their employer over high fees in the same 401(k) offering.

Why Your Fees are Likely Higher

Retirement plans have often been a cash cow for the national companies that provide them. Conflicts of interest abound when the advisor on the plan is an employee of the same company that custodies the assets, provides the investment options, and acts as the recordkeeper and administrator of your plan.

While all-in-one shopping might seem convenient, the lack of checks and balances allows for profits to be buried throughout the retirement plan in the form of investment expense ratios, sales loads, 12b-1 fees, commissions and other hidden compensation.

Not only do supposed advisers on plans often charge fees well in excess of what a financial advisor typically charges, the advisors also tend to recommend their company’s mutual funds, annuities, and ETFs in the plan’s investment choices. And advisers often earn bonuses for increasing the profitability their employer earns off your plan.

Additional RESOURCES & ARTICLES

• 401(k) Lawsuits: What are the Causes and Consequences? - by Boston College Center for Retirement Research

• Meeting Your Fiduciary Responsibilities - by the U.S. Department of Labor

• ‘Shame on Them.’ Fund Companies Got Sued By Their Own Employees Over Pricey 401(k) Plans - by Barron’s

• What You Should Know About Recent Trends in 401(k) Fee Litigation - by ERISA attorneys for BankDirector.com

DELEGATION of Fiduciary Obligations under Erisa 3(38) + 3(16)

With Purposeful SP 401k plans, we act as the fiduciary on the plan. Your company delegates authority to us in writing to make discretionary decisions on the investment options within the plan.

In addition, your company may also delegate the administrative functions of the plan to PCS. This includes the regulatory compliance, tax filings, and notifications required by law.

This delegation shifts your company’s role from being an investment and legal expert to acting as a manager who monitors the investment and legal experts, which greatly reduces your liability for the plan.

Most Providers offer NO DELEGATION or just 3(21) Delegation

Typically, the plan sponsor (your company) legally makes the investment choices for the plan, functions as a prudent investment expert, and ensures regulatory compliance. This means your company retains full liability for any potential problems even when you have an adviser on the plan.

The reason for this is most plan advisers are actually legally sales representatives of their company, and therefore cannot take on a fiduciary role. Plan providers often offer a menu of proprietary insurance or mutual fund products, and may offer recommendations (not advice) from a non-fiduciary advisor, but your company is still fully liable. Many companies believe they have delegated their fiduciary responsibility to an outside company but in reality have not.