Thu, Aug 17 12:35pm

5 things to know about retirement plan fees

By Robert McGriff, @m039153

Everybody pays to invest. The world is a costly place and we’ve all heard there’s no such thing as a free lunch.   There are costs we can plainly see and then there are costs that seem to be hidden.  Investment costs might be hidden or difficult to find.

All investors pay to invest. However, a recent report tells us that 58% of working Americans do not realize they pay fees to invest in their 403(b) or 401(k) retirement savings plan.  For those who do know they pay fees, only one in four knows how those fees are calculated.

What you are paying for. The major costs of investing are management fees and administrative costs – someone is doing all of the back office work of investment allocation, administration and more.

The management fee is used to pay the manager of the fund. Administrative costs include the costs of recordkeeping, mailings, maintaining a customer service line, etc. Mayo Clinic covers all administrative costs.

These are costs that all investment funds have. They vary in amount from fund to fund and are reflected in the investment’s expense ratio, regardless of whether the fund shares are purchased inside or outside of a retirement plan.

Expense ratios matter. A fund’s annual expense ratio represents ongoing fees and is shown as a percentage of the fund’s assets.  It shows what it costs to run the fund.  It is the percentage of the fund’s money that goes purely toward the daily expense of operating the fund.

The expense ratio is taken out of a fund’s assets and lowers your profit. However, these fees are not directly deducted from your account.  You will not see them reported on your account statement.  Instead, they are deducted from the fund before the fund’s share value is reported on your statement.

The following chart illustrates what even a small difference in an expense ratio can cost you in lost profits over time:

One-Time $10,000 Investment Earning 10% Annually
Expense Ratio
0% cost 0.5% 1.0% 1.5% 2.0% 2.5%
Value of Investment After 20 Years
$67,275 $61,159 $56,100 $52,736 $49,157 $46,022

 

Find expense ratios for Mayo Clinic retirement savings plans. Just a few years ago investors really had to do their homework to find out what investment fees they were being charged.  Fortunately, new regulations require this information to be readily available. You can find the Participant Disclosure Notice for your Mayo Clinic retirement savings plan by logging into Fidelity NetBenefits and clicking on the Plan Information tab, then click on Required Disclosure Information.

You will want to have a copy of your Fidelity 403(b) or 401(k) statement handy as you scroll through the fee disclosure notice to find the investments shown on your statement. You can estimate the annual amount you pay for your investment(s) by multiplying the fund balance shown on your statement by the fund’s expense ratio.

 

EXAMPLE

$10,000 invested in Investment Option A

x0.0045 expense ratio of 0.45%

$45 annual fee

 

Keep in mind that higher fees do not necessarily mean better performance. Nor are cheaper fees necessarily better. Investment fees are only one part of a bigger picture for choosing an investment. You also need to consider investment risks and returns and any other services provided.

 

The advantage of Mayo Clinic retirement savings plans. If you invest outside of your retirement plan on your own, well, you are on your own!  Many of us would like to know that someone’s got our back when it comes to our retirement plan investments.

As a retirement plan fiduciary, Mayo Clinic must hold to a high standard of care and diligence in carrying out their obligation to continuously monitor fees and expenses paid by your retirement savings plan. They are required to carry out their duties solely in the interest of employees and their beneficiaries.  For these reasons, they have established a careful process for selecting investment options and service providers.  Due to their ability to negotiate as a large group investor, they can ensure that fees and expenses of the plans are very reasonable.  All of this provides great savings opportunities for future retirees!

Contact Fidelity Investments at 1-800-343-0860 with questions concerning your investment options.

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Comment


Sunny All Day
@sunnyallday

Posts: 2
Joined: Sep 15, 2017
Posted by @sunnyallday, Fri, Sep 15 7:15am

this is great knowledge to be sharing, appreciate this information specifically for our service with fidelity. thanks!

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