…and it’s preposterous!
Plans with fewer assets are charged more for managing/administering a 401(k) than plans with more assets, according to data from the 401k Averages Book 19th Edition. And, that is not the only driver for cost disparity. Even plans with similar account balances may be charged differently.
While total costs for retirement plans did decline over the past year, small plans (100 participants/$5,000,000 assets) paid 1.24%, while large plans (1,000 participants/$50,000,000 assets) paid only 0.93% in fees; a difference of 0.31%.
“…we continue to find [that] large plans, with larger average account balances, pay less than smaller plans,” said Joseph Valletta, 401k Averages Book. “People in the industry understand this but I doubt participants of smaller companies are aware of this gap.”
However, it is not just total assets that keep costs down for plan sponsors. When comparing two 401(k) plans, both with about $5,000,000, the plan with 100 participants paid out an average of 1.55% in fees, while the plan with 500 participants only paid an average of 1.28%. It’s assumed that the reduced fee was due to larger average account balances.
Valletta recommends plan sponsors take a serious look into all fees when benchmarking costs for plans.
Saveday can provide you a cost comparison for your current or new plan. Visit Saveday.com.
Data provided by the 401k Averages Book.
