A plan's recordkeeping, administration, and advisory costs can be settled two ways. The company can pay them from operating cash, or the plan can pay them from the assets inside it. Both are legal. They are not remotely equivalent.
The invoice arrives, the company pays it, and the cost is generally a deductible business expense. The retirement balances are untouched and keep compounding.
The same cost is deducted from participant accounts. Nothing is deductible to the company, because the company never paid it. And the dollars removed are the ones that had decades of tax-sheltered compounding ahead of them. You did not save the expense. You moved it to the most expensive pocket you own.
Asset-based fees are charged as a percentage of each account. A twenty-employee plan does not divide its costs into twenty equal pieces; it divides them in proportion to balances.
In most small companies the owner has been contributing longest, at the highest deferral, on the highest compensation. So the owner's account quietly absorbs the largest single share of the plan's operating cost, in the least tax-efficient way available. Employees pay too, in the same proportion, which is why the arrangement is also a fiduciary question and not only a personal one.
The arithmetic is not subtle. On a $3 million plan, a difference of half a percentage point in all-in cost is $15,000 a year, drawn from retirement balances, compounding against the people it was supposed to serve. Over a normal 20-year career, that $15,000 a year, compounded at 8%, becomes roughly $686,000 that was supposed to stay in those balances.
Many small plans have never received an invoice at all, which owners understandably read as evidence the plan is free. It is usually evidence of indirect compensation: the funds in the lineup pay a portion of their expense ratios back to the recordkeeper or broker, out of participant assets, before anyone sees a statement.
That is the mechanism behind 12b-1 payments, sub-transfer-agency fees, and shelf arrangements. It is disclosed, but not on the annual filing. It appears in the 408(b)(2) service provider disclosure the provider is required to give the plan sponsor, and, on full filings only, in Schedule C.
Most small plans file the Form 5500-SF, which does not carry Schedule C, so the public record shows nothing. The payments continue regardless. The only way to see them is to read your own 408(b)(2) disclosure and your fund lineup side by side.
Ask your recordkeeper for the current service provider disclosure. It must state direct and indirect compensation, and whether the provider acknowledges fiduciary status.
Every fund, its share class, and its net expense ratio. Share class is where the revenue sharing usually hides: the same fund often exists in a cheaper institutional class the plan qualifies for.
In writing: which costs the company pays, which are deducted from accounts, and whether the deduction is pro rata by balance or per head. Then decide, deliberately, which pocket you want it to come from.
No. Paying reasonable plan expenses from plan assets is permitted. The ERISA question is whether the fees are reasonable for the services received and whether the fiduciary evaluated them. Never having looked is the exposure, not the arrangement itself.
Frequently yes, and for an owner with the largest balance it is often both a tax improvement and a fiduciary improvement. It should be documented as a decision rather than a drift.
A full Form 5500 with Schedule C shows provider compensation. The Form 5500-SF, which most small plans file, does not, so the public record is effectively silent on cost.
One finding and two questions, from your own Form 5500, within two business days. No call required, no cost, and nothing to sign. Companies of ten to fifty employees with roughly $1 to $5 million in plan assets are the ones we can help most.
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GlacierWealth, Inc. is a fee-only Registered Investment Adviser, independent since 2001. This guide is informational and educational only: not investment, legal, tax, or accounting advice, and not personalized to any reader's circumstances. Form 5500 filings are public but may be incomplete or outdated, and any observation drawn from one is confirmed against plan documents before it is relied on. Descriptions of ERISA obligations are general; consult your own counsel about your plan.