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Understanding Your Retirement Fees

Scott Holsopple

Investing fees have been in the news during the past few years as various regulatory agencies update rules related to expenses and fee disclosure.

You've probably received some additional paperwork from your retirement plan with details about those fees. More information can help you to make better decisions about your money, so fee disclosure is useful.

But don't assume all fees are bad. And don't assume the lowest-cost option is best. Everything has a price, and it's up to you to decide whether prices are fair and worthwhile.

Here's a little information about five types of fees you may be paying in your 401(k) account:

Plan-Level Investment Fees. These are the payments to the financial adviser (if your plan is small) or firm (if your plan is large) that manages your 401(k). Just like hiring a plumber or an electrician because of their expertise in their field, a plan sponsor may hire a plan-level adviser as a guide through tax-deferred benefits offerings. The fees charged by the plan-level adviser serve as compensation for several things, which include some or all of the following:

--Providing guidance during establishment of the plan, and assembling qualified service providers;

--Continuing to serve as a subject matter expert and liaison between various parties associated with a 401(k) plan, advising about the worth of supplementary products and services;

--Advising your plan sponsor about which investment options to offer in the 401(k) plan; and

--Conducting employee meetings to educate 401(k) participants about the facets of each investment option and other plan services.

You may need to ask your plan sponsor to clarify how much you're paying toward plan-level investment fees because they're deducted from your investment returns.

Plan-Level Service Fees. These are payment for extra services in which you may choose to participate. These services could include investment advice or taking a plan loan. If you have concerns about the overall nature of the fees in your plan, these are fees that you can likely control.

Plan-Level Administration Fees. These are payment for services your plan administrator likely provides. Plan administrators are generally third parties--separate from the plan manager (financial adviser or advisory firm managing the plan) and plan sponsor (your employer or some entity associated with your employer). Plan-level administration fees could include:


--Phone and website support, providing participant assistance and customer service;

--Legal advice to help your employer follow the regulations governing retirement plans; and

--Management of various statements and other required mailings.

This fee may be a percentage of your 401(k) assets or a flat fee.

Investment-Level Management Fees. These fees are paid for some investments that plan participants choose. For example, mutual funds and other investing funds are managed by teams of people who perform research and analysis to determine which investments to include in the funds. The fees are charged as a percentage of the assets you've invested with a fund.

Management fees, relative to peers, should be part of the equation when you're deciding whether to invest in a specific fund. But you also need to consider performance relative to peers and many other factors.

Investment-Level Transaction Fees. These are payments for buying and selling shares. Most 401(k) plans offer share classes that don't include loads (sales charges for buying or selling a mutual fund). And small, flat-rate transaction fees for all trades are also unusual. If you use a brokerage platform within your 401(k) plan, though, you may face these fees. You could see a redemption fee in this category if you trade on a fund too soon after purchasing the shares.

Bottom line, you can and should manage your fees to make sure you understand how much you're paying and for which services. You can't avoid all of the fees associated with investing, but you can be an informed investor.

Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.

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