Are you Over Paying for Your 401(k) Plan – Doctor?

Posted on June 11, 2014 by Dr. David Edward Marcinko MBA MEd CMP™

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Checking it Twice

By Guy P. Jones CFP® http://www.guypjones.com

Guy P. Jones CFPMany of the doctor and medical professionals I meet are surprised to find that their 401(k) plan has hidden fees. They often don’t have or take the time to learn all the aspects of setting up a new plan.

As a consequence, they often times buy what I call “The 401(k) in a Box” from the first provider that comes along or from a current vendor that is providing ancillary services for them.  Many plans have significant hidden fees and this is especially true of 401(k) plans offered to small businesses like a medical practice or clinic.

According to a recent study, the average 401(k) plan has hidden fees of 0.72% per year. That may not seem like much but it costs the average participant about $11,000 over the lifetime of their participation. That’s $350 per year – and the fees are extracted directly from the 401(k) your account!

But, what about doctors and small business owners whose 401(k) plans have fewer than 20 employees and less than $1 million in total assets?

Well, their situation is much worse. For these small 401(k) plans, hidden fees can jump from 0.79% to 1.89%, or up to $920 per plan participant per year. This can mean paying an estimated $28,000 in hidden fees over the lifetime of their participation. If you selected one of these 401(k) for your employees, you could be unknowingly costing them $350 – $920 per year in hidden fees.

What are 401(k) Plan Fees and Who Pays for Them?

401(k) plan fees and expenses generally fall into three categories:

  • Plan Administration Fees – The day-to-day operation of a 401(k) plan involves expenses for basic administrative services – plan recordkeeping, accounting, legal and trustee services – that are necessary for administering the plan as a whole. Generally the more services provided, the higher the fees.
  • Investment Fees – the largest component of 401(k) plan fees and expenses is associated with managing plan investments. Your net total return is your return after these fees have been deducted.
  • Individual Service Fees – Individual service fees are charged separately to the accounts of participants who choose to take advantage of a particular plan feature. For example, individual service fees may be charged to a participant for taking a loan from the plan or for executing participant investment directions.We all evaluate our vendors occasionally. I find most doctors and small business owners do not evaluate their retirement plans because they do not know what questions to ask:

Questions

  • When was the last time you reviewed your retirement plan for cost savings or plan improvements?
  • Is it time to find out how to get a plan started?

Retirement

Assessment

Getting education from a physician focused fiduciary financial advisor is an important step in the process to either grow the profitability of your current plan or realize the benefits of a 401(k) Plan.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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