Every retirement savings plan comes with certain fees and expenses.
Some are associated with the cost of managing the plan itself, while others are connected to the specific investment options you choose. In this second installment of our ongoing series about retirement plan fees, we’ll explore asset-based fees, sometimes know as fund fees.
Just what are asset-based fees? In general, you pay these fees based on the assets you have invested in a fund. Asset-based fees generally take the form of investment management fees, operating expenses, or sales charges; certain investments also carry other charges.
Management fees and operating expenses typically are the largest component of the fees associated with a retirement plan. You pay these fees indirectly because they are deducted from a fund’s assets before returns are calculated. For mutual funds, these fees are standardized and expressed as an “expense ratio” and are shown as the annual percentage of a fund’s total net assets (e.g., 0.27%). For non-mutual funds (such as collective investments and guaranteed investment contracts, among others), the fee and expense percentages may be calculated using different methodologies.
So, what does the expense ratio cover? Typically, it pays for three kinds of expenses.
Some mutual funds charge a sales fee when you buy or sell the fund. There are various kinds of sales fees, also known as “loads.” Some charges are deducted up front when you buy the investment—these are called front-end loads. Others are deducted when you sell the investment—these are called back-end loads.
When you invest in funds available in the UC Retirement Savings Plans (UC RSP), you will not pay any type of sales commissions or “loads” as you buy or sell shares. Investing through Fidelity BrokerageLink® may incur these fees.
You will typically find fund expenses and other fee information reported whenever a fund’s returns are shown. Look for this information in the Performance and Research page on NetBenefits.com.
In general, you can multiply a fund’s expense ratio by your balance in the fund to estimate the annual expenses associated with your holdings.
“A Look at 401(k) Plan Fees,” U.S. Department of Labor, Employee Benefits Security Administration, August 2013. Reviewed as of March 2016.
“A Guide to Retirement Plan Fees and Expenses,” Brian A. Montanez, AIF®, CPC Multnomah Group, 2014
Fidelity Brokerage Services LLC, member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
© 2017 FMR LLC. All rights reserved.