What do employers need to know about retirement plan fees? Employees are becoming more sophisticated when it comes to their retirement benefits. The fees your plan charges your employees may hurt your ability to attract top talent in the future and can even increase employee turnover.
Retirement Plans as a Recruitment and Retention Tool
While many people’s eyes glaze over the second you start talking about 401(k) plans, investment fees, and compound interest, more and more employees are paying attention to the details of their retirement plans. When choosing between competing offers with similar salaries, people often choose the company with the best benefit packages. Benefit packages are also a reason some employees leave jobs they love. They need better benefits. Your employment can be critical to attracting and keeping top talent. But, if the fees in your plan are too high, it can cost you top talent. Because of retirement plan disclosure rules, it’s now easier than ever for employees to compare retirement benefit plans from different employers.
High Fees Eat Away at Retirement Savings
The basics of most retirement plans are the same. Employees and employers both contribute to an employee retirement plan. The money is invested in various ways. It grows over time thanks to the power of compound interest. That means a dollar invested last year in a retirement plan is worth more than a dollar invested this year. But, nothing in life is free. All retirement plans have some fees. These fees may seem small, perhaps a few percentage points here and there, but every fee on a retirement account eats away at the money you and your employee are contributing. Every penny that goes towards retirement plan fees does not go towards retirement. It doesn’t get the advantage of compound interest. Over time, even seemingly modest fees are costly because of the lost investment opportunity they represent.
Not All Plans Charge the Same Fees
It’s easy to dismiss retirement plan fees. You might want to believe that all retirement plans are essentially the same. However, no two plans are exactly alike. The fees for 401(k) plans vary depending on the number of employees enrolled, the plan provider, and the actions the employees take in the management of their plans. Retirement plan fees are not like the prices at the gas station, where the difference of a few cents is meaningless. The difference of just 1% in a retirement plan fee could cost an employee tens-of-thousands of dollars in retirement savings. Smart employees take retirement plan fees into consideration when making decisions about their future employment.
What Are the Retirement Plan Fees Paying for?
Retirement plan fees are not evil. Companies that manage retirement plans are providing a service. But, employers owe it to themselves and their employees to understand what the plan fees are paying for. What is the quality of the customer service? Are the required reports easy for employees to understand? Is there a less expensive option? The more due diligence you perform on plan fees, the better off your employees will be. When you show your employees that you care about their retirement enough to make sure no one is overpaying on retirement plan fees, you will earn their loyalty. Employees need help and the statistics are telling you what to do.