Investigate Indirect Plan Costs to Level the Playing Field

Much of 401(k) plan costs paid by participants is offset by indirect revenue received from the mutual funds and other investment options.

When investments provide different revenues some participants can end up paying more than others, depending on which options they have chosen.

For example, Investment A may provide 0.10% in cost offsetting revenue while Investment B may provide 0.50%. A participant holding more of Investment A ends up paying more than their fair share.

What can you do if the playing field is not level? Determine the revenue provided by each investment. If the differences are significant consider these strategies:

  • Revise your plan to offer only investments that provide the same or very similar revenues

  • Use a record keeper that can return indirect revenue back to participants and calculate the fair, pro-rated fee each should be paying

If you are not getting ideas like this from your provider, it may be time for a review.

Allen Woodard