Controlling 401(k) administration costs: 1 good move, 2 bad ones

Even if your plan isn’t performing as well as it has in the past, you can put in your best effort to keep a lid on the costs to administer it. 

Moves to make

You’ve increased participation levels? That’s a great bargaining chip when you approach the organization managing your retirement plan.

If your participant base has grown, the cost per participant is down. And your company should be enjoying that in the form of lower fees. Since many service providers subsidize their record-keeping and administration expenses with management fees, take great care when analyzing these expenses.

Similarly, if your plan assets have grown, your per unit costs are down too.

Moves to avoid

Other possible cost-savers might not be the best strategies.

1. Switching service providers. Even if you intend to only switch the investment management function to another service provider, you may end up having to transfer all 401(k) plan functions to the new provider. Even switching to a provider with lower fees may saddle you with a steep “takeover” fee.
2. Holding out on employees. Some experts advise waiting as long as possible to make employees eligible to participate in your retirement plan, or delay vesting. This will likely only come back to bite you when employees resent you. With benefits nearly as important as salaries these days, it could make you less competitive with your peers.