Fee Structure: Who's In Charge? 401(K) Fees Explained

401(k) fees are charged at a plan level for the management and administration of a plan, while others are related to the investments made by employees within the plan. Investment fees are paid from fund expenses and lower 401(k) account returns by increasing the cost of investing. Employers can choose to pay either administrative or fiduciary and consulting fees, pay both, or have all fees paid by employees who participate in the plan.

Investment fees - paid from fund expenses, lower 401(k) account returns

Investment fees are paid from fund expenses and lower 401(k) account returns by increasing the cost of investing. They fall into one of two general categories – shareholder fees and operating expenses. Shareholder fees apply to individual investor transactions and account maintenance, while operating expenses cover regular and recurring fund expenses.

Mutual fund companies are obligated by law to disclose these fees in their prospectus. The U.S. Department of Labor (DOL) breaks 401(k) fees into three major categories - Investment Fees, Administration Fees, and Individual Service Fees.

Investment fees are almost exclusively paid by employees. Employers who do choose to pay some of these fees often do so in order to keep costs as low as possible for their employees, so that more of their money is saved and invested for retirement.

If one provider's fees are too much, there are plenty of alternatives. You can also take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualized percentage. If you have a choice between two similar funds—two growth-stock funds, for example—consider prioritizing the one with the lower expense ratio.

Administration fees - charged by the 401(k) provider, cover general management

Administration fees are charged by the 401(k) provider and cover general management such as legal and trustee services, record-keeping, and accounting. They also include day-to-day operations of the financial institution like customer service representatives, electronic access to plan information, and educational seminars.

These fees are not charged by the mutual fund itself and are often paid by the employer to keep costs as low as possible for their employees. However, only 17.8% of employers fully pay administrative fees, a further 19.5% share these expenses with employees, and the rest have set up their plans so that these fees are paid out of the plan’s assets.

The U.S. Department of Labor (DOL) breaks 401(k) fees into three major categories - Investment Fees, Administration Fees, and Individual Service Fees. Investment fees are paid from fund expenses and lower 401(k) account returns by increasing the cost of investing.

If one provider's fees are too much, there are plenty of alternatives and you can take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualized percentage.

Fiduciary and consulting fees - paid by employees, keep costs as low as possible

Employers can choose to pay either administrative or fiduciary and consulting fees, pay both, or have all fees paid by employees who participate in the plan. Investment fees are almost exclusively paid by employees. Employers who do choose to pay some of these fees often do so in order to keep costs as low as possible for their employees, so that more of their money is saved and invested for retirement.

The U.S. Department of Labor (DOL) breaks 401(k) fees into three major categories - Investment Fees, Administration Fees, and Individual Service Fees. Investment fees are paid from fund expenses. They lower 401(k) account returns by increasing the cost of investing. They fall into one of two general categories – shareholder fees and operating expenses. Shareholder fees apply to individual investor transactions and account maintenance, while operating expenses cover regular and recurring fund expenses. Mutual fund companies are obligated by law to disclose these fees in their prospectus.

Some of these 401(k) fees are charged at a plan level for the management and administration of a plan, while others are related to the investments made by employees within the plan. Sometimes, the fees paid in a 401(k) are taken directly from plan assets by your service provider and then paid out to the various vendors working on the plan. In other cases, the investments themselves will carry fees, which are taken out of the money invested in that specific investment.

When you have a financial institution managing your 401(k), there will be administration fees. Charged by the 401(k) provider (not the mutual fund itself), these fees cover general management such as legal and trustee services, record-keeping, and accounting. They also include day-to-day operations of the financial institution like customer service representatives, electronic access to plan information, and educational seminars. In some cases, service costs are covered by investment fees deducted directly from returns.

If one provider's fees are too much, there are plenty of alternatives. You can also take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualized percentage. If you have a choice between two similar funds—two growth-stock funds, for example—consider prioritizing the one with the lower expense ratio. In general, equity funds tend to be more expensive than bond funds, while exchange-traded funds (ETFs) are cheaper than mutual funds. Still, don't compromise your investment goals, risk tolerance, or common sense just to score a lower fee.

Individual service fees - paid by anyone who participates in the plan

K) fees are charged at a plan level for the management and administration of a plan, while others are related to the investments made by employees within the plan. Employers can choose to pay either administrative or fiduciary and consulting fees, pay both, or have all fees paid by employees who participate in the plan. Investment fees are almost exclusively paid by employees. Employers who do choose to pay some of these fees often do so in order to keep costs as low as possible for their employees, so that more of their money is saved and invested for retirement.

The U.S. Department of Labor (DOL) breaks 401(k) fees into three major categories - Investment Fees, Administration Fees, and Individual Service Fees. Investment fees are paid from fund expenses. They lower 401(k) account returns by increasing the cost of investing. They fall into one of two general categories – shareholder fees and operating expenses. Shareholder fees apply to individual investor transactions and account maintenance, while operating expenses cover regular and recurring fund expenses. Mutual fund companies are obligated by law to disclose these fees in their prospectus.

Account fees may also be incurred if you invest less than a certain amount in a mutual fund, or an exchange fee if you transfer to another fund in the same group. When you have a financial institution managing your 401(k), there will be administration fees. Charged by the 401(k) provider (not the mutual fund itself), these fees cover general management such as legal and trustee services, record-keeping, and accounting. They also include day-to-day operations of the financial institution like customer service representatives, electronic access to plan information, and educational seminars. In some cases, service costs are covered by investment fees deducted directly from returns.

If one provider's fees are too much, there are plenty of alternatives. You can also take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualized percentage. If you have a choice between two similar funds—two growth-stock funds, for example—consider prioritizing the one with the lower expense ratio. In general, equity funds tend to be more expensive than bond funds, while exchange-traded funds (ETFs) are cheaper than mutual funds. Still, don't compromise your investment goals, risk tolerance, or common sense just to score a lower fee.

Expense ratios - sum of fees expressed as an annualised percentage

The U.S. Department of Labor (DOL) breaks down 401(k) fees into three major categories: Investment Fees, Administration Fees, and Individual Service Fees. Investment fees are paid from fund expenses and lower 401(k) account returns by increasing the cost of investing. They fall into one of two general categories – shareholder fees and operating expenses. Shareholder fees apply to individual investor transactions and account maintenance, while operating expenses cover regular and recurring fund expenses. Mutual fund companies are obligated by law to disclose these fees in their prospectus.

Expense ratios are the sum of fees expressed as an annualised percentage. If you have a choice between two similar funds—two growth-stock funds, for example—consider prioritising the one with the lower expense ratio. In general, equity funds tend to be more expensive than bond funds, while exchange-traded funds (ETFs) are cheaper than mutual funds.

Some 401(k) fees are charged at a plan level for the management and administration of a plan, while others are related to the investments made by employees within the plan. Sometimes, the fees paid in a 401(k) are taken directly from plan assets by your service provider and then paid out to the various vendors working on the plan. In other cases, the investments themselves will carry fees, which are taken out of the money invested in that specific investment.

Employers can choose to pay either administrative or fiduciary and consulting fees, pay both, or have all fees paid by employees who participate in the plan. Investment fees are almost exclusively paid by employees. Employers who do choose to pay some of these fees often do so in order to keep costs as low as possible for their employees, so that more of their money is saved and invested for retirement.

If one provider's fees are too much, there are plenty of alternatives. You can also take some action on charges for individual funds within a 401(k) plan. Look in each fund's prospectus for the listed expense ratio, which is the sum of fees expressed as an annualised percentage.

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