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A participant-directed retirement savings plan, such as a 401(k) plan, is an
important tool to help your employees achieve a secure retirement. As part of
offering this type of program, you or someone you choose must select the
investment options from which your employees will choose, select the service
providers for the plan, and monitor the performance of the investments and the
provision of services. All of these duties require you to consider the costs to
the plan. This brochure can help you ask the right questions to better
understand and evaluate the fees and expenses related to your plan.
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You or the person you select to carry out these responsibilities must comply
with the standards provided under the Employee Retirement Income Security Act of
1974 (ERISA). This federal law protects private-sector pension plans. The law's
standards include ensuring that you act prudently and solely in the interest of
the plan's participants and beneficiaries.
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Understanding fees and expenses is important in providing for the services
necessary for your plan's operation. This responsibility is ongoing. After
careful evaluation during the initial selection, the plan's fees and expenses
should be monitored to determine whether they continue to be reasonable. While
ERISA does not set a specific level of fees, it does require that fees charged
to a plan be "reasonable."
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Of course, the process of selecting a service provider and investment options
should address many factors, including those related to fees and expenses. You
must consider the plan's performance over time for each investment option. This
selection process and continual monitoring will make it possible for your
employees to make sound investment decisions. As part of your evaluation process, here are 10 questions to help focus your
consideration of fees and expenses:
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Have you given each of your prospective service providers complete and
identical information with regard to your plan?
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Do you know what features you want to provide (e.g., loans, number of
investment options, types of investments, Internet trading)?
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Have you decided which fees and expenses you, as plan sponsor, will pay,
which your employees will pay, and/or which you will share?
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Do you know which fees and expenses are charged directly to the plan and
which are deducted from investment returns?
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Do you know what services are covered under the base fee and what services
incur an extra charge? Do you know what the fees are for extra or customized
services?
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Do you understand that some investment options have higher fees than
others because of the nature of the investment?
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Does the prospective service arrangement have any restrictions, such as
charges for early termination of your relationship with the provider?
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Does the prospective arrangement assist your employees in making informed
investment decisions for their individual accounts (e.g., providing investment
education, information on fees, and the like) and how are you charged for this
service?
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Have you considered asking potential providers to present uniform fee
information that includes all fees charged?
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What information will you receive on a regular basis from the prospective
provider so that you can monitor the provision of services and the investments
that you select and make changes, if necessary?
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Provide all prospective service providers with complete and identical
information about the plan and what you are looking for so you can make a
meaningful comparison. This information includes the number of plan
participants and plan assets as of a specified date.
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Consider the specific services you would like provided. For example, the
types and frequency of reports to employer, communications to
participants, educational materials and meetings for participants and the
availability and frequency of participant investment transfers, the level
of responsibility you want the prospective service provider to assume,
what services must be included and what are possible extras or customized
services, and optional features such as loans, Internet trading and
telephone transfers.
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Make informed decisions in selecting and monitoring your plan service
providers and investments.
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Fees are just one of several factors you need to consider in your decision
making.
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All services have costs. Compare all services to be provided with the
total cost for each prospective provider.
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Consider obtaining estimates from more than one service provider before
making your decision.
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Cheaper is not necessarily better.
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Ask each prospective provider to be specific about which services are
covered for the estimated fees and which are not. To help in gathering this
information and in making equivalent comparisons, you may want to use the
same format for each prospective provider. See EBSA's Web
site for an example of a uniform fee disclosure format to assist in your
selection and monitoring process.
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Fees and expenses can have a significant impact on your employees'
retirement savings.
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This brochure highlights the importance of a process for selecting and
monitoring your 401(k) plan's service providers and investment options.
Continue to ask questions - as an informed plan sponsor, you can make better
decisions for your plan and your employees.
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A copy of this brochure and the following resources are available on
EBSA's Web site:
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This material will be made available to sensory
impaired individuals upon request:
Voice phone: 202.219.8921
TDD: 1.800.326.2577
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