Broker Check
Has your retirement plan outgrown its initial pricing?

Has your retirement plan outgrown its initial pricing?

April 15, 2024

When going out to market for your 401k plan, you will typically receive pricing based on either your plan assets or your participant count. Plan asset crossover is the inflection point where the pricing structure of your plan, while initially advantageous, becomes more costly as the plan grows.

How does this pricing affect you now and later?

Let’s look at an example:

Your plan has $2 million in assets with 100 participants.

401(k) providers typically charge a plan based on one of two factors: Total Plan Assets or Total Participants. Let’s say you receive one of each type of quote.

The asset-based quote charges 30 basis points (0.003 x total plan assets), resulting in a $6,000 recordkeeping and admin cost.

The participant-based quote on the other hand charges a flat $100 per participant charge ($10,000).

Naturally, the former asset-based charge seems to be saving you $4k.

But what happens when your plan grows to $4 million without adding any additional participants?  Your asset charge is now $12,000 while your initially more expensive per participant charge remains at $10k.  That’s a $2,000 difference you could be saving.

Don’t just “set it and forget it”!

Many smaller plans who initially opt for the less-expensive asset-based plan end up paying more overtime as their plan grows.

This is why it’s important for plan sponsors to go to market every 2-3 years to benchmark the plan as required by the DOL.

Who should benchmark the plan?

Many providers offer benchmarking services but there is something you need to be aware of.  Benchmarking is a comparison to “Like plans”. So, if you are currently on an asset-based plan with your provider, that provider will most likely only benchmark against plans priced in the same way. Which can be very deceptive.

In this case, you are not comparing to other pricing methods in order to see what’s best for your specific plan. This is why using a third-party fiduciary, like the advisors at Beacon Financial Services can help you get a wholistic view of what’s available in the market. A third party will be able to provide you with options that may best serve your plan with its most current demographics.

Find out if your plan has reached its plan asset crossover and request a third-party fiduciary review below!

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.