NEW YORK--(BUSINESS WIRE)--Abernathy Daley 401k Consultants (Abernathy-Daley), a consultancy in 401(k) plan administration and employee education, has found that nearly 80% of companies with 100 or more employees are overpaying on 401(k) and 403(b) plan administrative fees. The data indicates that many companies are likely not benefiting from an independent benchmark of their corporate retirement plans, failing to capitalize on fee reductions over the last three years.
Along with the concerns of overpayment, the lack of realignment with best practices in fees indicates that companies are overall not conducting regular compliance-related benchmarking of their retirement plans, opening the door to risks. Frequently identified compliance risks include:
- Non-compliance with Employee Retirement Income Security Act (ERISA) reporting requirements mandated by the U.S. Department of Labor, which require 401(k) plans to provide clear disclosures on fees and investment options. Employers found to be overcharging employees may face penalties, lawsuits, or other legal repercussions.
- Improperly designed and/or implemented plans, most often associated with profit-sharing-related components of retirement plans.
- Misalignment with internal governance regarding eligibility to participate or contribute to plans based on full or part-time employment.
- Failures to properly reconcile alternative plan structures, such as Cash Balance Plans, which involve complex compliance testing.
Abernathy-Daley’s findings are based on an in-depth analysis of Form 5500 filings, a U.S. Department of Labor and Internal Revenue Service annual reporting requirement. Of the 6,566 companies with more than 100 employees reviewed, 5,241 reported administrative costs greater than the most efficient baseline costs broadly available.
“Our proprietary analysis of a vast swath of Form 5500 data clearly indicates a majority of companies are likely overpaying what’s necessary for plan administration fees,” said Steven Abernathy, CEO of Abernathy-Daley and famed financial consultant.
Matthew Daley, president of Abernathy-Daley, added, “The discrepancy between what companies are paying and the more affordable options available is striking. Our interviews and reviews of nearly two dozen companies confirm that a lack of third-party benchmarking is a key contributor. Without benchmarking, overspending often goes unnoticed, which increases the likelihood of compliance failures.”
Best Practices for Fee Management
Retirement plan administrative fee pricing is a combination of both the number of employees and asset totals. According to Abernathy-Daley, if a corporate 401(k) plan is paying over 0.3% for administrative costs based on the total assets in the plan, the organization is likely overpaying by tens of thousands to hundreds of thousands of dollars, dependent on the total assets.
Recommendations for course correction include ensuring retirement plan benchmarking is conducted annually by a third party acting as a legal fiduciary.
“HR leaders, CFOs, and other executives may not realize how fee structures, best practices, and technology have evolved in recent years to enable a less expensive and more compliant offering,” continued Abernathy. “It’s important for these leaders to become educated and take steps to ensure they minimize legal and financial risks.”
About Abernathy Daley 401k Consultants
Abernathy Daley 401k Consultants, a 401(k)-plan administration and employee education consultancy, provides unbiased, ethical, and conservative guidance to enable all employers and employees to make informed decisions about their retirement plans. Abernathy-Daley’s mission is to increase the viability of employees’ retirement plans, lessen the burden on the HR department’s resources, and reduce plan costs while improving employee outcomes. Expertly tailored to each client’s criteria, Abernathy-Daley’s 401(k) plans and recommendations have the goal to deliver significant cost savings, reduce time spent on administrative duties, and enable companies to provide valuable employee education. For more information, visit https://www.abernathydaley401k.com/.
