Do 401k Plan Providers Make Money from Mutual Fund Fees

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alex11
Posts: 85
Joined: Wed Jul 28, 2010 5:25 pm

Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by alex11 » Sat Apr 07, 2018 6:21 am

Our 401k is through Fidelity and they offer a Vanguard Institutional S&P 500 at .04%.
Of course, we also have other funds available that range from .4% to 1.4% from various mutual fund companies.

So.......Does Fidelity only make money on the admin/plan fees paid to them from our employer, or do they also get a cut of the expenses from the mutual fund company?

Could there possibly be some funds like the "other funds" mentioned above where they get a cut, but a fund like the Vanguard S&P, where they don't.
Thanks

KSActuary
Posts: 379
Joined: Fri Jan 13, 2012 10:53 pm

Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by KSActuary » Sat Apr 07, 2018 6:36 am

The term you are looking for is revenue sharing. Any mutual fund can have revenue sharing so you need to look at the prospectus or ask someone here. A fund line-up can include funds with revenue sharing and some that do not. The overall goal for Fidelity is to capture a certain level of asset-based fee (asset-based is a fee determined using a certain percentage of assets). For example, Fidelity's fee might be 0.45% of assets each year. Assume that the plan's assets are $2,000,000 so the recordkeeping fee is $9,000. If certain funds have revenue sharing which totals $2,500 each year then Fidelity will reduce participant account balances by the missing $6,500. Or, the employer can pay the missing fees if they are nice but few do. Thus, your line-up can be all no revenue share funds but you will stay pay for the recordkeeping services.

Recordkeeping fees should be fixed and not asset-based. Also, ask for your participant fee disclosure which tells you all of the fees.

livesoft
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Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by livesoft » Sat Apr 07, 2018 6:37 am

You can read the Form 5500 for your 401(k) plan that is available online for everyone to see. It should show how much your 401(k) provider makes from your plan.

It seems you want to know if the 401(k) custodian/sponsor gets a cut of the expense ratios that participants pay and any other payments that are made to the custodian/sponser. See the Form 5500.
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TIAX
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Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by TIAX » Sat Apr 07, 2018 7:35 am

livesoft wrote:
Sat Apr 07, 2018 6:37 am
You can read the Form 5500 for your 401(k) plan that is available online for everyone to see. It should show how much your 401(k) provider makes from your plan.

It seems you want to know if the 401(k) custodian/sponsor gets a cut of the expense ratios that participants pay and any other payments that are made to the custodian/sponser. See the Form 5500.
What line on form 5500 would include this information?

Pessimist55
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Joined: Thu May 14, 2015 12:16 am

Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by Pessimist55 » Sun Apr 08, 2018 1:18 am

Where would one find this form?

ThrustVectoring
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Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by ThrustVectoring » Sun Apr 08, 2018 11:08 am

Depends on the plan. My employer has a 401(k) from Vanguard, and they pay the recordkeeping and compliance fee. There's no match, but at least we get to dump money into VTSAX et al on a pre-tax basis.

KSActuary
Posts: 379
Joined: Fri Jan 13, 2012 10:53 pm

Re: Do 401k Plan Providers Make Money from Mutual Fund Fees

Post by KSActuary » Sun Apr 08, 2018 12:52 pm

A little background on Form 5500s. First, if the plan has less than 100 participants, the Form 55500-SF will be used which has no detail for admin expenses. Just a line item, 8(f) I believe. Second, if over 100 participants then the normal Form 5500 is used and expenses should be itemized but may not be if revenue sharing is used (higher MF fees). The vendors simply mark a box where there has been revenue sharing but not the $ amount. Basically, the Form 5500 is a joke unless someone is overly honest. Remember, these forms are completed by the vendors (fox in chicken coop). People like me data mine the Form 5500 data base to find high expense relationships where we can reduce fees by 50% - 75%.

https://www.efast.dol.gov/welcome.html

Use the search function in the upper left corner. We have the entire DOL data base downloaded if you want us to look and forward to you.

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