What Factors Affect the Fees and Expenses of a 401(k) Plan?
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What Factors Affect the Fees and Expenses of a 401(k) Plan?
Not all 401(k) plans are the same. The fees you pay will depend on the size of the plan, how it is managed, and how you use it. Here are the most prominent factors that affect expenses.
Things To Know
- The size of your plan can affect the fees you pay, as can the management style and the bundling.
- Optional fees that you choose will cost you extra.
The size of the plan
Size can matter. Larger plans have more freedom to choose specialized funds or different classes of stock. The result can be lower fees for you.
Whether it is actively or passively managed
Different plans have different levels of investment activity in them. An actively managed plan has investment advisors who actively trade the stocks and bonds in the plan in order to earn money. Therefore, fees will be charged to your plan to compensate these advisors and the various sales charges for the transactions. Passively managed plans do not have this level of activity; rather, their holdings are those of an existing market index, and so they do not need to change unless that index changes (which is fairly rare). These plans are usually index funds. For example, a fund seeking to follow the Dow Jones Industrial Average’s 30 stocks would contain these same 30 stocks and would not change them unless the Dow itself changed. This lower level of activity results in lower fees.
Whether the services and investments are bundled together or offered separately
Bundled services may not be charged separately; they may be covered by other fees.
Whether you take advantage of optional features
Optional features will cost you extra, so weigh their importance to you. A common optional feature is a loan program; you will pay various costs for taking out a loan.
If your plan is built on a variable annuity, there may be insurance benefits available for you to take advantage of. Those benefits may cost you extra.