Am I Paying Too Much?

As a Plan sponsor, how do I know if we’re paying too much for our current retirement plan?

Beach umbrellas come in a variety of sizes, colors, materials, and prices. During my family’s 2021 beach vacation, we were approached by no less than half a dozen vendors asking if we’d like to rent an umbrella, even though we had a very appropriate pop-up tent and sat comfortably inside. Unfortunately, we didn’t have chairs and did have to construct our tent alone, but the price of an umbrella was different with EVERY vendor.

I asked myself: what benefit would my family receive from a beach umbrella that would be used for 10 hours (at most), costing anywhere from $15 to $45 daily? Sure, the umbrella might help us avoid sunburns and provide a great place to nap, but where’s the logic in paying up to three times more for what is essentially the same product? Again, the questions and answers were endless.

Relating beach umbrella prices to retirement plan expenses is not difficult. Employers offer retirement plans for a variety of reasons. Most all have the ultimate goal of helping their workforce save for retirement. Similar to umbrellas, the cost to maintain a retirement plan can run the gamut. Plan size, design, committee/participant meeting frequency, and Plan provider can quickly skew prices.

Rather & Kittrell (RK) encourages plan sponsors to benchmark their retirement plans for:

1. What they currently pay, and
2. What services they do receive.

Plan costs typically consist of:

1. Investments: participant-paid expenses based on individual investments,
2. Recordkeeping: where participants and sponsors access accounts online, receive statements, and utilize online retirement calculators,
3. Administration: third-party administrators ensure that the Plan complies with Department of Labor rules and specified contributions are allocated correctly, and
4. Advisory: Plan design consulting, participant advice, and investment change recommendations.

Retirement plan services should include:

1. Retirement plan committee meetings (no less than annually) to include fiduciary training, review of committee charter, and Plan design,
2. Review of participant experiences, fee disclosures, and requests for information or proposals (RFIs and RFPs),
3. Participant on-site or virtual enrollment and advisory meetings to review the Plan and one-on-one discussions, and
4. Investment policy statement (IPS) and individual investment reviews, with necessary recommendations for investment changes or replacements.

Many factors are involved when a Plan sponsor questions whether they are paying too much for their retirement plan. This year, RK has reduced expenses and increased services for many plans in our portfolio. In addition, benchmarking tools have helped us review both our costs and our services in an ever-competitive industry.

We would enjoy helping you review and benchmark your Plan even if we don’t currently work together. So, please call us any time. We’re here to help.

Nathan Woods, CFP®, AIF® is an Advisor with Rather & Kittrell. Nathan is available at [email protected].