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Paying Attention to Retirement Plan Fees

by John Nownes, JD, Vice President – Retirement Plan Services, Union Bank & Trust


As defined benefit plans have transitioned to defined contribution plans, employees have become responsible for saving for retirement through a 401(k). Ideally, our balances will grow as much as possible over time. But what factors affect how that balance grows? These are key for you to understand and be aware of as you save for your future:

  1. Contributions made to the account
  2. Earnings credited to the account
  3. Fees charged to the account

While most understand the importance of contributions and earnings, many employees often underestimate the effect fees have on their retirement account. Consider the following:

Jack has a 401(k) account balance of $25,000. Investment returns average 7% over 35 years. Annual fees are 0.5%. In this case, Jack’s account balance will grow to $227,000, even if no more contributions are made. However, if annual fees were 1.5%, the account balance will only grow to $163,000. As you can see, the additional 1% in fees significantly reduces the account balance.

Retirement account fees are typically categorized as plan administration fees, individual service fees, and investment fees.


Plan administration fees pay for the daily operations of the plan, including recordkeeping, trustee, accounting, legal, and similar services.


Administration fees are usually paid in one of three ways: the employer sponsoring the plan pays the fees; the fees are charged directly against the participant’s account; or the fees are charged against the participant’s investment returns.


Individual service fees are assessed against a participant’s account for specific services the participant uses. Examples include loan fees and distribution-related fees.


Investment fees are paid in connection with the plan’s investments (e.g., mutual fund fees). These fees are assessed against the participant’s investments, and are deducted directly from the participant’s account. A mutual fund’s net total return takes these fees into account. Common types of investment fees include sales charges (i.e., loads/commissions) for buying or selling mutual fund shares; 12b-1 fees paid to compensate brokers for selling the mutual fund; and management fees for the daily operations of the fund (i.e., the “expense ratio”).


Typically, as a participant, you have no control over plan administration and individual service fees, but depending on the available mutual fund investments in the portfolio, you may have some control over investment fees.


When making your investment decisions, take some time to research, understand, and consider investment-related fees. By considering all of the primary components of your retirement fund, you can set yourself up for strong returns that grow over time.

See U.S. Department of Labor, Employee Benefits Security Administration,
“A Look at 401(k) Fees” at 1-2.