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Sometimes revenue sharing is referred to as “hidden fees”, other times “indirect payments.”
For good reason, these fees can be so complex and “under the radar” that many retirement plan sponsors are either unaware of their existence or don’t have a sense of their real cost.
The fact is revenue sharing is how companies like yours might be paying for their plan’s administration. Or put another way, leaking money.
Revenue sharing refers collectively to fees that service providers (insurance companies, payroll providers, banks, brokerage houses, mutual funds) charge to plan sponsors and participants.
Your plan’s administration might appear to be “free” since you’re not receiving invoices for these services. But—as the saying goes—there’s no such thing as a free lunch.
Revenue sharing is several types of fees buried in your retirement plan’s administration:
1. 12b-1 fees
These fees are deducted from the assets of mutual funds. They are charged directly to the participants invested in that fund. 12b-1 fees are used to compensate broker-dealers and are disclosed in the mutual fund’s prospectus.
2. Sub transfer agency fees – Shareholder servicing fees
Paid by mutual funds to 401(k) record-keeping firms to help subsidize record-keeping costs (i.e., keeping track of share ownership at the plan and participant account level, communicating fund information to participants, etc.)
All of these forms of revenue sharing have as their source plan participants’ mutual fund investments.
If your 401(k) profit sharing plan has a million dollars or more in assets, it may be eligible to receive these revenue sharing credits. So instead of fees going to an insurance company or payroll provider (or whoever is providing custodial and recordkeeping services) they go back to you, the Plan Sponsor.
We’re here to help you reduce your retirement plan’s expenses. Contact us for a complimentary review at [email protected], call at 949-223-8397 or submit our website contact form.