A recent analysis by Abernathy Daley 401(k) Consultants suggests that around 80% of companies with more than 100 employees may be overpaying on administrative fees for the defined contribution (DC) retirement plans. This finding, based on a review of over 6,500 Form 5500 filings submitted annually to the Department of Labor and IRS, highlights a widespread issue across industries. For plan sponsors, administrative fees are just one component of total plan costs, but they are critical to evaluate regularly. Managing all plan fees effectively is a fiduciary duty that directly impacts the financial health of the company and the quality of employees’ retirement savings. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Retirement plans typically include multiple types of fees that sponsors should manage carefully. Here’s a breakdown of the main types of plan fees and why each matters for cost management and compliance:
Overpaying on any type of retirement plan fee has consequences for both employees and plan sponsors. Excessive fees reduce the net returns on employees’ retirement savings, slowing the growth of their accounts. For employees contributing to a 401(k) or 403(b) over several decades, even a small percentage difference in fees can significantly impact the total balance at retirement. Participants who unknowingly bear these higher costs may end up with less income, potentially delaying retirement plans.
From a compliance standpoint, plan sponsors have a fiduciary responsibility to ensure that all fees are fair and reasonable. Failing to manage fees effectively can lead to legal action. A 2020 report by Aon found that at least 85 excessive fee lawsuits were filed in U.S. courts, marking a fourfold increase over previous years. This uptick in litigation reflects a growing awareness of fiduciary obligations around fee management.
Recent high-profile cases illustrate the consequences of excessive fees. In 2023, General Electric paid $61 million to settle a lawsuit that claimed the company’s limited fund choices resulted in high fees for participants. Similarly, Cornell University is facing a lawsuit, currently before the U.S. Supreme Court, where employees allege that the university failed to control administration fees in its 403(b) plan, raising costs for participants. These cases emphasize the substantial financial and reputational risks for plan sponsors.
Plan sponsors can take several proactive steps to manage retirement plan fees, protect employees’ savings, and ensure regulatory compliance. Here are key actions to consider:
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Effective management of all retirement plan fees, especially costly administrative fees, means meeting fiduciary obligations, supporting employee financial wellness, and reducing compliance risks. If you have questions about the information outlined above or need assistance with your next retirement plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
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