Retirement plan fees and expenses
As a retirement plan participant, it is important to understand the expenses associated with your plan. There are two types of plan expenses to focus on:
- Investment expenses — the costs associated with the investment options offered in your plan
- Plan operating expenses — the expenses charged for the day-to-day recordkeeping and administrative services provided to the plan
We’ll break down these types of expenses by answering some frequently asked questions.
How do plan expenses affect my retirement plan account?
It’s up to your employer to decide who pays for plan expenses. In some cases, the employer pays them. In others, the plan itself pays for them. If the plan pays for the expenses, the value of your account will be reduced by those expenses.
What are investment expenses?
The investment expenses associated with the mutual funds in your plan account consist of the following:
- Investment management expenses — These expenses compensate the fund’s investment adviser for managing the fund’s portfolio.
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Distribution and/or service expenses — These expenses compensate your plan’s financial professional for, among other things, services related to setting up and maintaining the plan, as well as ongoing education for plan participants like yourself. Distribution expenses depend on what share class your employer has selected for your plan. Log in to your account or review your quarterly account statement to see which share class is offered in your plan. It will be listed after the name of the funds.
Below are the maximum distribution expenses for the American Funds you may have in your plan:
1Maximum annual distribution expenses1 (percentage of average net assets) Class A Class R-1 Class R-2 Class R-3 Class R-4 Class R-5 Class R-6 0.30%2 1.00% 0.75% 0.50% 0.25% No fees No fees This does not include the expenses charged by any financial intermediary, which are independent of fund expenses. Although American Funds Money Market Fund has 12b-1 plans for certain share classes, it will not initially pay 12b-1 fees to financial professionals. Please see the fund’s prospectus for details.
2The maximum is 0.25% for certain funds and 0.15% for American Funds cash-equivalent and short-term bond funds.
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Other expenses — These include custodial, legal, transfer agent and recordkeeping payments, as well as other expenses related to fund operations.
Recordkeeping payments may be made either to entities that are part of the American Funds organization or to unaffiliated third parties for providing recordkeeping and other administrative services to your retirement plan. The amount paid will depend on the share class and who is providing the services.
The table below shows the maximum payments that may be made for providing recordkeeping and other plan administrative services for each of the American Funds in your plan:
1Share class Maximum payments to entities affiliated with American Funds1 Maximum payments to unaffiliated third parties Class A 0.05% of assets or $12 per participant fund position2 0.05% of assets or $12 per participant fund position2 Class R-1 0.10% of assets 0.10% of assets Class R-2 0.15% of assets plus $27 per participant fund position3 or 0.35% of assets4 0.25% of assets Class R-3 0.10% of assets plus $12 per participant fund position3 or 0.19% of assets4 0.15% of assets Class R-4 0.10% of assets 0.10% of assets Class R-5 0.05% of assets 0.05% of assets Class R-6 No payments allowed No payments allowed Affiliated entities include companies that are part of the American Funds organization. The recordkeeping programs sponsored by American Funds, PlanPremier® and Recordkeeper Direct® use affiliated entities to provide services. All other plan recordkeeping programs use unaffiliated entities.
2Payment amount depends on the date upon which services commenced. The maximum is 0.10% of assets for the American Funds Target Date Retirement Series®.
3Payment with respect to American Funds Recordkeeper Direct program.
4Payment with respect to American Funds PlanPremier program.
Where can I get more information on investment expenses?
To help you understand what you’re paying, the American Funds retirement plan prospectuses prominently disclose fund expense ratios (annual operating expenses). If your plan offers investment options other than the American Funds, review the prospectuses, investment fact sheets or fund details pages for those investment options.
What are plan operating expenses, and how do they affect my retirement plan account?
Plan operating expenses are the fees charged for the day-to-day recordkeeping and administrative services provided to your plan. These expenses may pay for services provided to the plan as a whole, such as recordkeeping services.
Some plan operating expenses may be covered, in whole or in part, by a portion of the investment expenses. Any expenses that are not covered may be deducted from your account and would appear on your quarterly account statement.
Some services typically provided through these expenses include:
- Setting up and tracking your account information
- Providing daily valuation of your account holdings
- Printing and mailing account statements
- Maintaining telephone and online plan account access
There may be other plan operating expenses charged to your account if you choose certain services available in your plan, such as setting up and maintaining your loan records.
To find out if these or other expenses are deducted from your account, check your account statement, ask your employer or review your plan’s summary plan description.
Why are there different share classes available?
American Funds offers Class A, R-1, R-2, R-3, R-4, R-5 and R-6 shares for retirement plans. The different share classes give employers the flexibility to decide how plan expenses are paid. To find out which share class is offered in your plan, log in to your account, review your account statement, or ask your employer.
Where can I get more information?
The U.S. Department of Labor has a booklet that you might find helpful: A Look at 401(k) Plan Fees. The booklet is available in Adobe® Reader® format. If you don’t have Adobe Reader, you can download it from Adobe’s website.
Return to topInvestors should carefully consider the investment objectives, risks, charges and expenses of the American Funds. This and other important information is contained in each fund’s prospectus and/or summary prospectus, which can be obtained from your plan’s financial professional or downloaded and should be read carefully before investing.