October 6, 2022

Bucks: Lincoln Trust’s Enhanced View of Retirement Plan Costs

In recent weeks, the Your Money columnist Ron Lieber has written often about the impact of mutual fund expenses and other fees on the performance of 401(k) plans and the difficulty of determining just how much one is paying in expenses.

Now, the Lincoln Trust Company, a Denver-based provider of retirement and profit-sharing plans, is offering a way for companies who offer its 401(k) plans, their advisers and their employees — the plan participants — to get a better idea of just how much they are paying in fees and expenses and how their plan compares with similar offerings.

Lincoln is offering companies detailed quarterly statements (pdf) of expenses along with an “all-in” fee calculation that it calls a “personalized expense ratio.” The aim is to provide a snapshot of a plan’s total cost, without hiding fees or forcing participants to crunch numbers themselves.

It’s true that starting next year, the federal Labor Department will require retirement plans to disclose more information about costs to participants. But Tom Gonnella, senior vice president of corporate development with Lincoln Trust, says Lincoln’s offering provides detail beyond what the new rules demand, in that Lincoln calculates and displays the total cost incurred by a plan or a participants. “We didn’t think the regulations went far enough,” he said.

Lincoln will provide plan “sponsors,” as employers are called in 401(k) industry lingo, with quarterly summary sheets itemizing expenses for each plan member, as well as the overall cost for the plan. The resulting expense ratio is then compared with industry benchmarks, so companies can see if their plan is significantly more expensive than others. (Companies offering plans through Lincoln will begin receiving the new summaries after the end of the current financial quarter).

A sample itemized report shows costs including investment expense, or, what it costs to run the funds included in the plan; fee offsets, or “revenue sharing,” which are payments the funds pay back to Lincoln Trust for administrative costs as the plan’s “recordkeeper;” the cost of any third-party administrators; and any individual expenses attributable to a specific member’s account, like fees for borrowing against their 401(k) balance. “Every dollar that goes out for the servicing of the plan is in that calculation,” said Mr. Gonnella.

The disclosure represents an improvement over what employers traditionally have access to, but there are still a few costs that aren’t included.

The fine print of the sample reports notes, for instance, that the investment expense estimate doesn’t include some mutual fund transaction costs, like brokerage commissions, due to the buying and selling of fund shares; those costs, rather, are reflected in a fund’s total return. Mr. Gonnella said in a follow up e-mail that fund companies typically don’t disclose that information. But he added that commissions should be a relatively small cost, unless a fund manager has high portfolio turnover. Lincoln typically doesn’t see many such portfolios in the plans it administers, he said.

Individual participants can get a version of the chart reflecting their specific investments and related expenses too, if the company chooses that option. It is up to the company to decide how much detail it wants to provide to its members, Mr. Gonnella said, but he saw a trend toward greater explanation of fees and expenses. “People are clamoring for more transparency,” he says.

Lincoln offers “open architecture” 401(k) plans, with access to funds from various fund families, to smaller and midsize companies.

Take a look at Lincoln’s itemized sheets and compare them with your own 401(k) plan’s disclosure, and let us know what you think.

Article source: http://feeds.nytimes.com/click.phdo?i=cbbb143d40ba6c0866a0a3f68926dcd9

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