Consider These Strategies to Boost the Cost Effectiveness of Your Plan

It's important for plan sponsors to regularly review and reassess their retirement plan to ensure they are cost-efficient for both them and their employees. Fortunately, there are a number of actions you can take to reduce plan fees and enhance the overall value of your retirement plan. Here are ten key strategies to consider:

1. Fee Benchmarking. Regularly benchmarking fees against industry standards can help plan sponsors ensure they are getting competitive rates for services. This involves comparing fees with similar plans to identify areas for improvement. If you currently work with a plan advisor, they can quarterback the fee benchmarking exercise on your behalf and help you determine whether or not you need to take any specific action.

2. Negotiate Fees with Service Providers. Plan sponsors can negotiate fees with record keepers, investment managers, and other service providers. Engaging in competitive bidding or seeking proposals from multiple providers can create opportunities for fee reductions. 

3. Consolidate Investments. Reducing the number of investment options within the plan can lead to lower administrative and management costs. In addition, a long-held principle of behavioral finance is that more choice doesn’t always lead to better decisions by employees – which is another good reason to consider reducing your plan’s investment options. Are there funds on the current menu that either aren’t being used or aren’t being used widely? You may find that they are contributing very little other than information overload for your employees.

4. Check For Lower Cost Share Classes. Mutual fund companies usually make their funds available to 401(k) plans in multiple share classes. While all classes hold the same underlying securities, they can charge very different fees. Generally, employers have a fiduciary responsibility to choose the lowest-priced share class available to their 401(k) plan – so avoidable investment fees don’t reduce participant returns over time.

5. Add Index Funds and Passive Investments. If you haven’t already, consider incorporating low-cost index funds and passive investment options in the plan's lineup. These investments typically have lower fees compared to actively managed funds.

6. Review Plan Design: Evaluate the plan's design to identify opportunities for cost savings. For example, adjusting the employer match structure or changing vesting schedules may impact overall plan costs.

7. Leverage Technology: Implementing technology solutions for administrative tasks and participant education can reduce manual workload and associated costs. Automated processes can lead to greater efficiency.
8. Educate Participants: Provide education to participants about the impact of fees on their retirement savings. Encourage them to make informed investment choices and consider lower-cost options.

10. Fee Equalization: Implement fee equalization to allocate plan expenses fairly among participants. This approach ensures that participants with different investment choices share the cost burden equitably.
11. Consider Collective Investment Trusts (CITs): CITs are often lower-cost investment options compared to mutual funds. Exploring CITs as part of the plan's investment lineup can contribute to fee reduction. Your plan advisor can provide further guidance on CITs and whether or not they are right for your plan.