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Ever notice how people like to complain about 401(k) plans, be it employees, the press, or even people who never had one? It is interesting to note that outside someone's home, their largest asset at the time of their retirement will probably be their 401(k) plan. In spite of all of the market volatility nothing, and I mean nothing, has proven to have greater accumulation potential than a properly run 401(k) plan.
I would venture a guess that as a business owner, when contemplating your own personal retirement, you first reach for the 401(k) statement to see where you stand. Your employees envision retirement the same way. View the 401(k) plan as a business tool that has the potential to provide you with a satisfying retirement, while at the same time creating loyal, dedicated employees.
As with any service that you purchase, there is a trade-off between value and price. Administration of your 401(k) plan is no different. Problem is that you are very busy running your business, and you tend to give little thought to how your 401(k) plan is operating. 401(k) providers know your situation, so they subtly shift the value/price ratio away from you making you pay for less. Costs are buried in the performance figures, and there is little if any ongoing service. What are you paying as plan sponsor for them to manage your 401(k)? There are generally these costs:
- Fund Expenses - You offer a variety of mutual funds. This expense is what the fund companies charge each shareholder to manage the fund.
- Operating Expenses - What the 401(k) charges you the plan sponsor to administer your plan.
- Individual Service Fees - Charges assigned to the individual participant. An example would be for any loans taken.
- Hidden Costs - Could be almost anything with revenue sharing agreements being a good example.
Assuming a typical 7.5% long-term target rate of return and total fees easily topping 2.5% or more annually, it is not difficult to see how fees could take 33% off of your investment return. To make matters worse, this is not a one-time price. You and your employees are paying this year after year, decade after decade. That is a very heavy price to pay.
On the other side of the equation, service is often minimal at best. Think about it for a minute. What has your provider done for you? Often they have filed the form 5500 with the government, sent out a few reports, and deduct their hidden fees like clockwork. To make matters work you as a plan administrator have been proven vulnerable to employee lawsuits over recent years due to lack of due diligence, and have been left hanging.
Certainly there must be a better balance between cost and value, and at the same time minimizing your chances of legal litigation. This is where Contour Financial enters the equation, a firm dedicated to a higher level of customer service.
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