How to Find & Calculate Empower 401(k) Fees
If you have questions about Empower 401(k) fees – how they work, how much they cost on average, or how you can find & calculate them for your plan – you’ve come to the right place. In this guide, we’ll show you how to calculate the full cost of an Empower 401(k) plan using their DOL-mandated fee disclosure.
By the end of this guide, our aim is for you to have a complete understanding of how Empower’s pricing works, how much you’re paying, and how your fees stack up.
Let's dive in.
What are Average Empower 401(k) Fees?
In our most recent Small Business 401(k) Fee Study, we found that Empower plans cost small businesses an average of 0.86% of plan assets each year, with their admin fees totaling about $400.16 per participant.
Average Empower 401(k) Fees
Avg. Plan Assets
Avg. Plan Participants
Per-Capita Admin Fees
While their per-capita admin fee is a bit below the study average of $422.30, that number can grow much higher due to the way these fees are charged.
In our experience, about 50% of admin fees charged by Empower are paid by revenue sharing or variable annuity wraps – “hidden” 401(k) fees that lower the investment returns of plan participants. Not only are plan sponsors or participants often unaware that they’re paying them, but they’re always charged as a percentage of plan assets. That means plan participants will automatically pay Empower higher and higher administration fees for the same level of service as their account grows. That’s not fair!
When you factor in compound interest, these growing fees can make a huge dent in your retirement savings. As such, you want to do everything in your power to avoid paying them.
If you’re using currently using Empower for your 401(k), your first step to avoiding these fees is to find out whether or not you’re paying them. We’ll show you how to do that next.
How to Find & Calculate Empower 401(k) Fees
To understand how much you’re paying for your Empower plan, I recommend you sum their administration and investment expenses into a single “all-in” fee. Expressing this as both a percentage of plan assets, as well as hard dollars per-participant, will ultimately make it easier for you to compare the cost of your Empower plan to competing 401(k) providers and/or industry averages.
To make this easy on you, we’ve created a spreadsheet you can use with all the columns and formulas you’ll need. All you need to do is find the information for your plan, then copy it into the spreadsheet.
Doing this for Empower can be a bit of a pain, but not to worry – we’ll show you everything you need to do in 4 simple steps.
Step 1 – Gather All the Necessary Documents
To calculate your Empower 401(k) fees, you’ll need 2 documents:
- Plan Fee Disclosure for Plan Fiduciaries: Empower is obligated by Department of Labor regulations to provide employers with a 408(b)(2) fee disclosure. This document contains plan-level information about the administration fees charged by Empower. This information is intended to help employers evaluate the “reasonableness” of their 401(k) fees. This document can be found on the Empower employer website.
- TPA Services Agreement: Empower does not deliver third-party administration (TPA) services – one of the three administration services every 401(k) plan requires - themselves. Instead, an unrelated (usually local) company delivers your TPA services. As such, you’ll need to factor the outside TPA’s pricing into your Empower fee calculation. The fees charged by your TPA can be disclosed in a services agreement or invoice.
Once you’ve gathered the necessary documents, you’re ready to move on to step 2.
Step 2 – Locate Empower’s Direct 401(k) Fees
401(k) administration fees can be “direct” or “indirect” in nature. Direct fees can be deducted from participant accounts or paid from a corporate bank account, while indirect fees are paid from investment fund expenses - reducing their annual returns.
Direct fees are the most transparent and are probably the ones you’re most familiar with.
Empower's direct fees (if any) can be found in the "Payments to Recordkeeper (RK)” section of their 408(b)(2) fee disclosure
Note: Sometimes Empower also includes their wrap fees (labeled as "Variable Asset Charge") in this section, even though it's not a direct fee. When totaling Empower's direct fees, be sure to only include the Gross Payments for the Fee Types "Asset Based Charge" and "Plan Maintenance".
Next, you’ll need to find the direct fees charged by your TPA. These can be found either in your TPA Services Agreement, or in a recent invoice.
In step 4, you’ll add your TPA fees to Empower’s fees to get the total direct fees being charged to your plan.
Next, we’ll see if Empower charges your plan any hidden administration fees.
Step 3 – Uncover Empower’s Hidden 401(k) Fees
In our experience, about 50% of admin fees charged by Empower are paid from the fund expenses of plan investments. These “indirect” fees come in two basic types:
- Revenue Sharing Fees: Revenue sharing is the practice of adding non-investment related fees to the operating expenses of a mutual fund – which reduce the investment returns of plan participants. These additional fees then compensate plan service providers. There are two general forms:
- 12b-1 fees – usually compensate a broker or insurance agent.
- Sub-Transfer Agency (sub-TA) fees – usually compensate a recordkeeper.
- Wrap Fees: Insurance companies often use variable annuities instead of mutual funds as 401(k) investments. A variable annuity is basically a mutual fund wrapped in a thin layer of insurance with additional fees and redemption restrictions. The additional fees usually include a “wrap” fee that can increase the expense ratio of the underlying mutual fund dramatically. Sometimes by more than 1%!
Neither revenue sharing nor wrap fees are disclosed as hard dollar amounts on the Empower fee disclosure, which makes them really easy to overlook. Instead, these "hidden" fees are disclosed in different parts of Empower’s 408(b)(2) fee disclosure.
Revenue sharing fees can be found in the “Payments to Investment Providers (IP)” section:
Wrap fees can be found in the “Payments to Recordkeeper (RK)” section, labeled as “Variable Asset Charge”:
Note: Again, these are not to be confused with Empower's direct fees, which can often be found in the same section. Wrap Fees are labeled with the Fee Type "Variable Asset Charge" - anything else is likely a direct fee.
In step 4, you’ll multiply these percentages by the applicable fund balance to calculate the indirect fees charged by Empower.
Step 4 – Calculate Your All-In 401(k) Fee
In this step, we’ll enter the information we found into our spreadsheet to calculate your plan’s total cost – or “all-in” fee (administration fees + investment expenses).
First, enter the fund information from your Empower 408(b)(2) document into the spreadsheet. The formulas will automatically calculate your indirect fees.
Next, we need to add your direct fees.
Enter Empower’s direct fee in the appropriate line item towards the bottom of your spreadsheet.
Once you have that, add your TPA fees to the “TPA” Fees line item.
At this point, all of your administration fees and investment expenses (net of indirect fees) should be broken out and totaled, giving you the all-in fee of your Empower plan $19,287.95 in our example).
To make it easier for you to benchmark your fees against other plans, we recommend expressing this number as a % of plan assets. In our example, this number is 1.46% ($19,287.95/$1,319,609.00).
Evaluate Your Admin Fees on a Per-Capita Basis
After you have calculated your all-in fee, we recommend you take a quick look at your Empower administration fees on a per-capita (i.e., headcount) basis.
Excess administration fees – basically, fees that outstretch your 401(k) provider’s level of service – might not be readily apparent if they’re solely evaluated on an all-in basis with investment expenses. This is especially true if your plan has lots of assets.
To demonstrate the value of this evaluation, consider a $1,625,825.48 401(k) plan with only 7 participants from our 2018 small business 401(k) fee study. While it’s $25,611.64 all-in fee (1.58% of plan assets) was below the study’s 2.10% average, its $2,521.81 per capita administration fee ($17,652.64/7 participants) was more than four times average. That’s a lot!
To calculate your per-capita administration fees, simply divide the administration fee total from your spreadsheet by the number of participants in your plan. For our 11-participant example, this number is $1,126.89 – which is quite a bit higher than participants could be paying with a low-cost 401(k) provider.
Don’t Let Your Empower 401(k) Fees Get Out of Hand
By now, you should have a complete breakdown of your Empower 401(k) fees and how they’re being charged.
Even if yours are below average now, Empower’s revenue sharing and wrap fees can cause them to very quickly become excessive as assets grow. For this reason, it’s crucial that you compare your plan’s fees on a regular basis.
Too much trouble? We’ve got a solution.
Simply switch to a 401(k) provider that charges fees based on headcount – not assets - to the extent possible. Such a fee structure will make it easier for you to keep your 401(k) fees in check as your plan grows. You just might save some money while you’re at it.
About Eric Droblyen
Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.