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One of the most important factors that can help plan administrators choose the best 401k program to offer employees is the fees associated with the plan. While some plan fees are standard regardless of the plan provider, others can vary greatly. These 401k fees will typically fall into one of three categories that include plan administration fees, investment fees, and individual service fees. Some fees are paid by the plan, or the employer, while others are paid by the employees.
The 401k fees charged for plan administration cover the widest range of services offered. They include charges for accounting, compliance testing, and record keeping on behalf of the plan. These fees may also cover the cost of customer service and technical support available to both the plan administrators and the employees. Optional costs that can be included in the plan administration fees may also cover any employee training and education programs, as well as promotional plan materials, such as enrollment forms, explanation of benefits brochures, and general plan information packets. Plan administration fees are covered by the employer, though a portion of the cost may be passed on to the employees as part of their investment fees.
Investment fees on a 401k plan comprise the largest percentage of all the applicable 401k fees. They consist of percentage-based fees charged to the employee based on their investment options. The fees are designed to handle investment management, primarily those costs associated with the employment of fund managers, as well as any trading costs associated with modifications of asset allocations. Investment fees are often deducted from any dividends or investment returns the employee receives from their 401k plan investments.
The final category of 401k fees is comprised of individual service fees. These are strictly employee-based fees which are charged on a per use basis for various plan benefits. They can include the flat rates charged for 401k loans, as well as charges that may be incurred for frequent asset reallocation. Investment counseling is also a common offering to employees that can incur charges separate from standard plan fees. Service fees may also be charged to employees who choose to have their 401k funds invested in options that are not part of the standard plan offerings.
Plan administrators will often choose plan providers based on the structure of their 401k fees. Even though the employer may be passing a portion of the fees onto employees, it is still their responsibility to select the plan that will be most beneficial to the company and its employees. It is then the employee's responsibility to research the various fees and select the best investment options and additional services for her money.
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