What Is The Most Obnoxious Fee In A Retirement Plan?

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I hate unnecessary fees in retirement plans. Most people don’t know how to identify them, but the good news is that you can avoid them.

Some retirement plans such as 403(b)s contain annuities or are set up by insurance companies. They may charge “surrender” fees for moving funds, which are quite onerous.

One plan charged participants a 5% surrender fee to move funds within a retirement plan. That’s outrageous in a time in which brokers offer no-commission trades and many mutual funds and exchange-traded funds have expense ratios next to nothing.

In one lawsuit filed against the annuity provider VALIC, a small plan administrator objected to the high surrender fee, which may violate federal law under ERISA, which governs retirement plans.

“An early surrender fee does not reasonably compensate for loss if it provides for payment in excess of actual loss. VALIC’s early surrender fee, which provides for payment in excess of any actual loss, is prohibited by ERISA,” the complaint states.

Have you seen high fees in your plan? Generally, you shouldn’t pay more than 0.40% annually for fund management and certainly you shouldn’t be charged for sales or transfers. Of course, you can file an objection with your plan administrator — or a lawsuit.