Cost of retirement plan administration and record keeping

Cost components and how fees are charged

Written by Kevin Hagen

Your objective in setting up a retirement plan is to provide your employees with a valuable benefit that will enhance your ability to attract and retain the best employees. In choosing the right plan, you're also concerned with the cost of retirement plan administration and record keeping.

Components of the cost of retirement plan administration and record keeping

As explained by the Employee Benefits Security Administration, there are different types of fees involved in operating a retirement plan:

• Investment fees are the largest component of the cost. These fees are generally a percentage of the assets invested and may be charged indirectly as a deduction from the investment returns, so they may not be readily apparent.
• Plan administration fees are charges for the day-to-day operation, including record keeping, accounting, legal and trustee services. If you offer a 401(k) plan there could be charges for additional services such as online access to plan information and transactions, investment advice, retirement planning software, and a customer service representative. These costs may be included in the investment fees or could be billed separately.
• Individual service fees are charges for optional features your plan offers under an individual account plan. For example, there may be a fee for taking a loan from the plan or for carrying out individual investment instructions. These fees may be charged directly to the account of the individual who requests the particular service.

The cost of retirement plan administration and record keeping may be charged by just one provider in a bundled arrangement, or each provider of different types of services, such as the investment manager, trustee, record keeper, and communications firm, may charge separate fees. There could be additional fees for initial setup, plus a monthly flat fee or per employee fee.

Costs of different types of plans

The cost of retirement plan administration and record keeping depends on the type of plan. A SEP IRA plan for a small business is one of the easiest to set up and generally has the lowest cost. A simple IRA is more robust than a SEP IRA but has a higher administrative cost.

The cost of a 401(k) plan will depend on the features and flexibility you want, such as how many investment options the plan offers. A defined benefit plan requires a significant amount of administration and the cost can be high compared to defined contribution plans.

Tax benefits

If you have 100 or fewer employees, you can claim a tax credit for the cost of retirement plan administration and record keeping. The credit is 50% of the cost of setting up a SEP, Simple IRA, 401(k), or other qualified plan and educating employees about the plan, up to a maximum credit of $500 per year for the first three plan years. You can also claim a deduction against your business's federal income tax for the contributions you make to the plan.

BuyerZone can help your company get set up with a comprehensive retirement plan. Submit a free request for retirement plan administration quotes, and we can match you to multiple providers in your area.