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Minimum Investment Fee


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A 401(k) plan has a recordkeeper platform offering a significant number of mutual funds as its only current investment option. The recordkeeper charge is 50 basis points. The plan is considering adding a managed brokerage account where a participant would be subject to a minimum annual advisory fee of $5,000. Would this managed account option be considered discriminatory because of its relatively high fee?

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I am not sure about discriminatory issue but the plan fiduciaries are required to make sure the fees are reasonable. Are the people going to get $5,000/year worth of service from the advisor?

I have been in a 401(k) plan with a self directed brokerage account since 2008 and the plan charges me an extra $50/year to have it. I am hard pressed to see what I would get for $5,000.

My guess is it is discriminatory also. But that is more a gut reaction then something I can prove.

All and all I would rate the idea as a bad one.

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Let's assume the reference to $5,000 is for the entire plan, or is there a typo?

If $5,000 is correct, then context is needed: does the plan have 10 participants? 100? 1,000?

As stated above, the fiduciaries are responsible for determining if all fees are reasonable, including both the $5,000 and the 50 basis points.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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