The document discusses understanding retirement plan fees and expenses. It provides an overview of common plan fees including asset-based fees, participant-based fees, and itemized service fees. It notes that fees can have a significant impact on retirement savings over time. The document recommends that plan sponsors conduct regular fee audits, benchmark fees, and negotiate fees to help fulfill their fiduciary duty to ensure fees are reasonable.

1. Understanding Retirement Plan Fees & Expenses
©2003 – 2013 Multnomah Group, Inc. All Rights Reserved.

2. Brian A. Montanez, AIF, CPC, TGPC
A Principal of the Multnomah Group, Brian is responsible for client service and
business development in Northern California. Brian advises an array of
organizations, including healthcare and educational institutions. Brian regularly
consults with plan sponsors on plan design, fiduciary governance issues,
investment menu construction, and vendor fees/services.
Brian is an AIF, Accredited Investment Fiduciary certified by the Center for
Fiduciary Studies, and a QPA, Qualified Pension Administrator, QKA, Qualified
401k Administrator and a QPFC, Qualified Plan Financial Consultant accredited
and holds a Tax-Exempt and Governmental Plan Administrators Certificate by
the American Society of Pension Professionals and Actuaries (ASPPA). He
holds a B.S. in Economics and Finance from Bentley University in
Massachusetts.
2 Understanding Retirement Plan Fees & Expenses

3. Agenda
• Why Understanding Fees is Important
• Fiduciary Obligations Regarding Fees
• Detailed Review of Common Plan Fees
• 10 Steps Every Plan Sponsor Should Take
3 Understanding Retirement Plan Fees & Expenses

4. Affect of Higher Fees
Two participants, Jim and Marcia, both save $2,000 per year for retirement in
their company’s 401(k) plan. Both start saving at age 25 and save $2,000 a
year until they retire at age 65. They both invest their money in mutual funds
that provide them with a gross rate of return of 10% per year. The only
difference is that Marcia incurs only 1% per year in expenses while Jim incurs
2% per year.
$800,000
$700,000
$600,000
$500,000
Age (Years)
$400,000
$300,000
$200,000
$100,000
$-
25 30 35 40 45 50 55 60 65
Por tfolio Value ($)
Jim Marcia
4 Understanding Retirement Plan Fees & Expenses

5. Fiduciary Obligation
One of the primary obligations of a responsible plan fiduciary is to determine
the reasonableness of the fees incurred by participants in the plan in relation to
the services received by the plan.
According to the Department of Labor (DOL):
“Among other duties, fiduciaries have a responsibility to ensure that the services
provided to their plan are necessary and that the cost of those services is
reasonable.”
Understanding Retirement Plan Fees and Expenses (December, 2011)
U.S. Department of Labor, Employee Benefits Security Administration
5 Understanding Retirement Plan Fees & Expenses

6. Tussey v. ABB, Inc.
In Tussey v. ABB, Inc. (March 31, 2012), a district court in Missouri awarded
plaintiffs more than $35 million in damages against 401(k) plan fiduciaries for
breaching their duties under ERISA.
• Never calculated the amount paid via the revenue sharing arrangement
• Did not consider its ability to leverage the plan’s size and did not negotiate
lower fees for plan participants
• Had 401(k) plan subsidize other corporate benefits
6 Understanding Retirement Plan Fees & Expenses

7. Plan Fees & Expenses
Generally, retirement plan fees can be classified into three main categories, but
the associated services may apply to multiple categories. For the purposes of
this webinar, we will categorize the fees and then suggest the specific functions
typically related to each expense.
• Asset-Based Fees and Expenses
• Calculated as a percentage of plan assets and can be based on a portion or all
assets of the plan
• Participant-Based Fees and Expenses
• Calculated based on the number of participants in the Plan or eligible for the Plan
• Itemized Service Fees and Expenses
• Typically applied as a fixed charge for a specific service provided, such as a
participant loan or hardship distribution, testing, plan implementation or plan
termination
• Other
• Professional and other miscellaneous investment and contract fees
7 Understanding Retirement Plan Fees & Expenses

8. Asset-Based Fees – Investment Products
Common Investment Products and Associated Fees:
• Mutual Fund
• Expense Ratio
• Investment Management Fee
• Administrative Expense
• Trading Expenses
• Revenue-Sharing
• Collective Investments / Comingled Investment Funds
• Expense Ratio
• Investment Management Fee
• Administrative Expenses
• Trading Expenses
• Revenue-Sharing
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9. Asset-Based Fees – Investment Products
• Stable Value Accounts
• Expense Ratio
• Investment Management Fee
• Administrative Expense
• Trading Expenses
• Revenue-Sharing
• Market Value Adjustment
• General Account / Guaranteed Investment Contracts (GICs)
• General account of the issuing insurer
• No explicit:
• Investment Management Fee
• Administrative Expenses
• Trading Expenses
• Revenue-Sharing
• “Revenue” based on spread between investment earnings and crediting rate
9 Understanding Retirement Plan Fees & Expenses

10. Asset-Based Fees – Investment Products
• Variable Annuity Contracts
• Underlying Investment Product Fees, plus:
• Variable Asset Charge
• Mortality and Expense (M&E) Fee
• Insurance-Related Charges
• Surrender and Transfer Fees
• Wrap Fees & Expenses
• Catch All
• Recordkeeping
• Custodial
• Administrative, Testing & 5500
• Employee Communication
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11. Asset-Based Fees – Revenue Sharing
• Revenue Sharing
• 12b-1 Fee
• Shareholder Servicing Fee
• Sub-Transfer Agency Fees (SUB-TA)
• Commissions
• Services Can Include
• Recordkeeping
• Administration
• Compliance
• Education
• Payment to Selling Agent or Broker
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12. Participant-Based
Participant-Based Fees and Expenses are calculated based on the number of
participants in the Plan or eligible for the Plan and may be a base fee plus a
unit charge. Typically, they are charged to the participant for individual services
for that participant, or to the sponsor for the service performed.
Services May Include:
• Participant Statements
• Education & Enrollment
• Administrative Services
• Technology Access
• Call-Center Availability
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13. Itemized
Itemized Service Fees are generally charged on an as-incurred basis, and may
be paid by the plan sponsor, by the plan, or by the participant. They are fees
for specific services detailed in the vendor’s service agreement.
Some itemized fees are participant-based (i.e., fees charged on a per
participant basis) while others are charged for a specific service to the entire
retirement plan.
Itemized Service Fees and Expenses are typically applied as a fixed charge for
a specific service provided such as a Participant fee for a loan or hardship
distribution, or a Sponsor fee for plan implementation or plan termination.
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14. Itemized
• Brokerage Window
• Investment Advice
• Outside / Legacy Asset Recordkeeping Fee
• Custody Fees
• 5500 Preparation
• Special Participant Mailings
• Trustee Fees
• Directed
• Discretionary
• Special Compliance Testing
• New Comparability
• Social Security Integration
• Controlled Group Testing
• Plan Termination
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15. Fees - Other
The fees discussed so far are the most common types of fees paid for ongoing
services provided to retirement plans.
These “other expenses” are fees that might be charged and are typically
detailed in a service agreement, but need to be understood.
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16. Fees – Other
• Professional (Optional):
• Audit
• Legal
• Consulting
• Sales Charges
• Front End
• Finders Fees
• Back End
• Contingent Deferred Sales Charge (CDSC)
• Exchange Fees / Early Redemption Fees
• Typically in less liquid asset classes, exchange / early redemption fees designed
to limit short-term trading in the fund
• Charged by the fund to an investor as a redemption expense when the investor
sells out of a fund after a short period of time (typically 60 to 90 days)
• Paid back into the fund to compensate the fund for the costs of the investor’s
short-term trading activity
• The SEC generally limits redemption fees to 2% of invested assets
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17. Fees – Other
• Market Value Adjustment
• Cost that is incurred to liquidate an investment (typically fixed income) earlier that
what was initially anticipated upon or agreed to
• Found in investment products where liquidity is limited and is dependent on the
market environment at the time liquidation is requested
• Stable value / GIC products
• If interest rates in the market are higher than when the investor initially purchased the
investment, the adjustment may cause the redemption value to be lower.
• Puts on Redemption
• Anywhere from 12 months to 10 years
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18. Fee Policy Statement
1. Best Practice
2. The purpose of this document is as follows:
1. To segregate business decisions from fiduciary decisions
2. To identify plan fees
3. To determine which expenses are allowed to be paid by the plan
4. To state the amount of administrative expenses to be covered by the Sponsor
5. To establish a mechanism for charging expenses and allocating expenses to the
Trust that are not paid by the Sponsor
6. To assign responsibility to those charged with oversight of the plan fees.
7. To set a policy against using the assets of a qualified plan assets to pay or
offset fees charged under a nonqualified or ineligible plan
18 Understanding Retirement Plan Fees & Expenses

19. 10 Steps Every Plan Sponsor Should Take
1. Develop a Fee Policy Statement
2. Demand fee disclosure - 408(b) Notice
3. Review to ensure comprehension of 408(b) Notice
4. Perform a fee audit annually
5. Benchmark your plan’s fees
6. Negotiate a better fee “structure”
7. Lock-In fees
8. Consolidate investment managers / share classes
9. Use passive investment products
10. Be willing to put your services out to bid
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20. Disclosures
Multnomah Group, Inc. is an Oregon corporation and SEC registered
investment adviser. Current or prospective clients may request a copy of
Multnomah Group’s Form ADV Part 2A by contacting us.
Information contained herein is provided “as is” for general informational
purposes only and is not intended to be completely comprehensive regarding
the particular subject matter. While Multnomah Group takes pride in providing
accurate and up to date information, we do not represent, guarantee, or provide
any warranties (express or implied) regarding the completeness, accuracy, or
currency of information or its suitability for any particular purpose.
Receipt of information herein does not create an adviser-client relationship
between Multnomah Group and you, and we have not assessed the suitability
or potential value of any particular investment. Neither Multnomah Group nor
any of our advisory affiliates provide tax or legal advice or opinions. You should
consult with your own tax or legal adviser for advice about your specific
situation.
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