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Fees for 457 plans?


Guest LJS
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We have been asked to submit a bid on a takeover of a 457 plan. We have prepared plan documents for 457 plans before, but we have never administered a 457 plan. What are the pros & cons of administering a 457 plan? Any tricks? Any pitfalls?

Also, what is a common fee structure for administering a 457 plan? A flat fee? A per participant fee? An hourly fee?

Any responses are welcomed and appreciated!

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  • 6 months later...

As director of a small government entity, I am looking for a 457 provider that offers a wide variety of mutual funds and has minimal asset management fees. So far the best that I have been able to find is 75 basic points on assets.

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I don't work for a consulting firm, so I think it's okay for me to say that many employee benefits consulting firms can conduct a vendor search for you, focusing not just on cost, but risk/return and customer service. I don't think it's a good idea to focus on cost alone (nor, under ERISA anyway, would it be consistent with one's fiduciary duties).

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  • 3 weeks later...
Guest Ralph Amadio

Like most plans that cover large numbers of participants, 457 plans started with insurance and mutual funds, and are now gravitating toward breaking down the pieces and computing actual costs. Needless to say, unless a consultant is working on a fee for service basis, with full disclosure, plans provided by investment and insurance providers are difficult to evaluate. Hidden charges abound, with some of them being quite unconscionable. I have seen representations of costs listed at 15 basis points, when the actual loading, including wrap fees, termination fees, management fees for funds, etc. added up to 370 basis points.

Since most 457's today are self directed, few sponsors have kept a close eye on the end game--net results. My recommendation is to look at the 457 similar to a governmental 401(k), since the amount of work is comparable. Don't be surprised at the wide span of "expense charges", since equity investments allow for a huge number of variables. Employers, due to self direction, union pressure, etc. often take a hands off position, letting often unsophisticated committees, etc. make the decisions. Perhaps the Walker case may have a bearing on this issue. If the client is really interested, break down the costs for him and see whether your provider competitors are really offering "free" services.

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I would recommend that you touch base with the National Assn of Government Deferred Compensation Administrators (NAGDCA). The NAGDCA has a great deal of resources available - in particular their survey of their members'457 plans, including a survey of their fees. You can reach them at (606)231-1904.

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