What is the “rat” in Pro rata?

Your HCEs (or Highly Compensated Employees) are REALLY overpaying for their 401k plan.

Many companies shift deductible plan expenses to their best employees without realizing it.

Almost all company sponsored 401(k) plans bill the non-fund, non-management fees to the participants in the following way:
A)    X Dollars per participantcup-48500_150
B)    X Platform expense per plan
C)    X% in addition to A and B

Once the total dollars for the plan are established they are divided into all participant balances (total plan assets) to establish a percentage. Participant balances are multiplied by this percentage and fees subtracted in relation to each accounts balance.

An average plan might have $150 per participant in non-fund, non-management expenses. Let’s assume there are 100 participants and $5,000,000 in total plan assets. Expenses equal .3%.

The president of the company has $500,000 in the plan. His or Her expenses are $1,500 per year.

If the remaining 10 executives have $2M more in the plan in total, this small group of 11 is essentially paying the fees for everyone else. Generally these are the most “profitable” people in the firm.

Some or all of these expenses could be allocated to the people associated with the service.

It can be fixed without switching your plan or hurting your low balance participants! Contact your Third Party Administrator or Adams-Hansen & Associates, a Registered Investment Advisor at 612.986.7860.