How employees can encourage their employers to create a better retirement plan

Understanding how your company's retirement plan works can be intimidating. Many people know they have a list of investment options, but don't understand them and all of their associated costs. Unfortunately, the employers have little understanding either, primarily due to not having an incentive to care as I explained in a previous post.

I created a list of questions participants can ask their employers to help with this process, but many employees fear confronting their employers. While employees can't get around this issue because the employers will always have the decision-making power, they can find out quite a bit of information on their own.

One way they can gather information is to look up their retirement plan tax form known as form 5500. They can either go to the Department of Labor's website or set up a free account at https://freeerisa.com. Some plans will disclose some or all of the service provider fees such as advisory, record keeping, administration, and custodial fees, all of which I have explained in more detail here.

Another way is to contact the record keeper and ask for the 408b-2 or 404a-5 fee disclosure for employers and participants. The record keeper is the party who sends out statements and provides a website such as Fidelity, Principal, or John Hancock. They should be able to quickly provide this information. Even if they won't provide the employer fee disclosure, you can still figure out what the total fees are by dividing your assets by the total plan assets, which can be found on the 5500 form noted above. For example, if you have a balance of $100,000 and the total plan assets are $1 million, then you can multiply your fees by 10 to get an idea of what the total fees are. However, depending on the record keeper, the fees may not be shown on the 404a-5 participant fee disclosure, and even if they are, this type of calculation will not always be a precise way to measure the total fees, so employers are in a better position to obtain this information.

At the very least, by gathering information about their own fees and letting their employers know about other record keepers and administrators who are often not included in fee benchmarking searches and offer more affordable pricing (shown here) and raising questions about the reasonableness of the advisory fees if they haven't had any contact with the advisor, employees can help their employers conduct thorough due diligence. This way, employees might be more receptive to employees' concerns.

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