Navigating excessive fees in retirement plans: Why sponsors must take a proactive approach

Retirement plan sponsors are the first, and most important, line of defense in providing employees with well-managed retirement savings plans. However, they face significant challenges in the form of excessive and complex fee structures within the retirement plan marketplace. As the industry continues to evolve, it is vital for sponsors to take proactive measures in managing their fees to safeguard their participants’ retirement savings and effectively fulfill their fiduciary responsibilities.

The ultimate cost of excessive fees

Fees in retirement plans come in various forms, including administrative, investment management, and advisory fees, among others. While various types of fees are necessary for maintaining the quality and performance of a plan, excessive fees can significantly diminish the retirement savings of participants over time. According to a 2023 study by the Center for American Progress, even a seemingly small difference in fees, such as 0.25% versus 1.00%, can lead to tens of thousands of dollars less in a participant’s retirement account by the time they retire.

These excessive fees often remain hidden from participants, buried in complex fee structures and difficult-to-decipher fund disclosures. While transparency has improved over the years, thanks in part to regulatory initiatives like the Department of Labor’s fee disclosure rules, many plan sponsors still struggle to fully understand and effectively manage these costs.

 

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