Though determining actual 401k plan costs is very difficult, they can be reduced.
The Department of Labor is currently (October, 1997) investigating "excessive" 401k charges by outside plan administrators. The difficulty of determining 401k charges is increased by the bundled approach used by many outside administrators who provide "one-stop shopping" as well as by the complexity of investment-related expenses and other factors. Still, 401k expenditures can be controlled. Negotiation with the organizations providing 401k services, switching to other service providers, performing tasks in-house, or shifting assessments to employees are general approaches that can reduce costs.
Employers can directly decrease their outlay by reducing their 401k contribution. An increase in employee deferral contributions may produce a reduction in employer 401k contributions needed to satisfy non-discrimination requirements. Employee deferrals can be increased by improving employee communications, selecting the right employer matching contribution, providing greater availability for loans or having a mandatory enrollment program. The 401k plan employer contribution can also be reduced by delaying participation as long as possible, not providing a contribution to some participants (beware the non-discrimination requirements) and by delaying vesting.
401k investment charges can be lowered by eliminating unnecessary assessments, such as the contract fees many insurance companies charge or the wraparound fees mutual funds impose on funds other than their own. Negotiating with organizations currently providing investment services, informing them that assets have grown and thereby lowered per unit costs, or switching the investment function to other service providers can also reduce these charges. Investment management fees can be shifted to participants by having them deducted directly from their accounts or requiring that participants pay these fees when the plan is established.
Employers can decrease their 401k plan administration and compliance expenses by negotiating with the organizations providing administrative services or by switching to a service provider with lower charges. This may be difficult to do, since the new 401(k) provider must review the history of the case and may assess a takeover fee.
401k recordkeeping expenses can be decreased by performing the recordkeeping in-house, staff permitting. If 401k recordkeeping charges are switched to employees' accounts, it is preferable to do so upon establishment of the plan. Negotiating recordkeeping fees with the service provider and indicating that the participant base has grown and thereby lowered per participant costs may also lower plan expenses. Since many service providers subsidize their recordkeeping and administration expenses with investment management fees, employers should use care in analyzing these expenses.
Good employee communications can increase employee enrollment and reduce costs. Performing in-house communication with participants using packaged goods such as computer software programs may help, but it may be better to leave this function to benefit communication professionals. Unnecessary communication materials should be eliminated.