“Are you paying anything for your retirement plan?”

When asked that question during an AARP survey, 71% of respondents answered no, compared to 23% who believed they do pay for their plan (6% were unsure).

The fact that seven in 10 Americans do not believe they pay anything for their plan is troubling, especially because 401(k) fees can be exorbitant and are distributed to multiple sources. The industry has done a stellar job of remaining opaque on the subject of fees, despite the Department of Labor enacting tougher fee disclosure rules in 2012.

Also see: "States with the worst-funded pension programs."

Where do these fees go? There are a number of hands in the pot, so to speak. Here are the three entities that collect on your 401(k) fees, no matter how high or low they are.

1) Administration

For every 401(k) plan, an important legal component is the third-party administrator. Administration refers to the responsibilities of a third party to manage the intricacies of the federal regulations that govern the actual 401(k) code of retirement planning. In short, this is a group that ensures your 401(k) is compliant.

Those responsibilities include, but are not limited to, making required amendments to the documents, administering the required year-end testing and reporting the Form 5500 (think 401(k) tax forms) to the IRS.

2) Record keeping

The record keeper is the person who looks after the numbers for your business. They keep track of employees’ money and the gains/losses on the funds that need to be entered each day. They are also responsible for year-end reporting, calculation of vesting, numbers reported back for IRS tax forms and compliance testing, etc. The numbers are just as important as, if not more than, the legal aspects.

3) Investments 

All 401(k) plans contain asset-based fees that vary and go into three different sources. These fees can run anywhere from 1-2% of your 401(k) balance, which is like a double-edged sword; the larger your balance, the more you pay in investment fees.

Also see: "States with the best-funded pension programs."

First, the fees are distributed to the fund company that created the fund for you. Then, the TPA again steps in and gets even more of your money. Why’s that? Well, they’re in cahoots with the fund company, as they frequently refer business to the fund company. Lastly, fees are paid to your adviser. While this is usually someone whose job is to meet with you and educate you on your 401(k), they’re also licensed to sell these funds and get a kickback for doing all the foot work to bring the client to the table in the first place. As long as your 401(k) is running, they’re getting a percentage, too.

401(k) participants should realize that while there is no free lunch, they don’t have to be paying obscene amounts for their plans. In fact, a plan can cost as little as $4 a month — with nothing hidden in the fine print.

Parks is CEO of Ubiquity Retirement + Savings. Reach him at cparks@myubiquity.com.

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