At Risen Son Financial, our first step is to review the current cost and value being received by the plan. We can do this by reviewing the 404(a)(5) (participant fees) and 408(b)(2) (plan fees) disclosures that plan is required to distribute and receive from vendors. If these are not readily available, we can also review fund lineups and statements.
We meticulously review the retirement plan, including these 4 costs:
- Recordkeepers – Receive funds from the employer and employee paycheck. Their main responsibility is to keep record of the contributions a participant receives and investment gains. Additionally, recordkeepers do the buying and selling of investments that the participant chooses, while also providing a website and quarterly statements.
- Administrators – Make sure the plan meets the requirements set forth in the IRS code. They handle, testing, compliance, vesting, eligibility, loans, and withdrawals. Many times, administrators are “bundled” with the recordkeeper.
- Investments – Contributions are deposited into investments. They have their normal expense ratio; however, these often come loaded with internal fees like 12b-1, sub-TA, concession and wrap. This is called “indirect compensation” or “revenue sharing.” Often, an investment company will pay the recordkeeper a fee to be included in the investment lineup.
- Advisors or Brokers – There is a difference. As a named fiduciary to the plan and participants, Advisors give advice, recommendations, and/or have discretionary control of investments, along with being the quarterback of the plan. This includes benchmarking all fees paid to vendors and shopping plan costs to keep fees reasonable. Advisors are held to the best interest standard. In contrast, Brokers are held to the suitability standard. Brokers can’t give advice nor can they name themselves as a fiduciary to the plan. Brokers sell a product as a representative of a larger entity.