Performance & Fees
Performance
When considering your investment options, pay close attention to fund performance and fees.
Choosing investments is the first step in planning for your retirement. Over time you’ll need to monitor the performance of your investments and evaluate progress toward your goals. Ideally, the value of your portfolio will steadily increase over time, even if some of your investments lose value.
Investment performance from the ORPHE providers available:
Fees
A portion of the operating costs associated with retirement plans, products and services are passed along as fees to plan participants.
These fees may seem small, but over time they can have a major impact on your investment portfolio. The following chart shows an investment portfolio with a 4% annual return over 20 years when the investment either has an ongoing cost of 0.25%, 0.50% or 1%. Notice how the fees affect the investment portfolio over 20 years.
Portfolio Value From Investing $100,000 Over 20 Years
When choosing a provider or a particular investment, you should consider and compare the costs you will be charged. It is also important to understand that investing in a fund with a lower expense ratio will not necessarily result in a higher account balance (depending on the fund’s investment objectives and the actual performance of those objectives). A fund with a higher expense ratio may have higher net returns than a lower cost fund, in which case, the higher net returns more than offset the higher fund expense.
Do Your Homework
- When opening your account, read thoroughly all documents about your plan.
- Review your account statements, confirmations and other documentation to monitor the types and amount of fees you are paying and to ensure charges are correct.
- Ask questions if you are not clear on how fees are broken down or the types of charges you are being asked to pay.
To help you better understand how an investment’s expense ratio translates into dollars and to illustrate the impact of various fees, refer to this sample fee schedule .
What Types of Costs Will You Incur?
| Fee Type | Description | Ongoing or Transactional1 | $ or %2 | Implicit or Explicit3 |
|---|---|---|---|---|
| Annual Operating Expense (Expense Ratio) |
Annualized asset-based expenses that can change from time to time; expressed as a ratio (expenses divided by net assets). | Ongoing | % | Implicit |
| Investment Management Expense | Generally include investment management activities, portfolio accounting and custodial services. | Ongoing | % | Implicit |
| 12b-1 Distribution Fees | Charged by some provider companies to cover marketing costs and expenses for distributing their product. | Ongoing | % | Implicit |
| Mortality and Risk Expense | Direct insurance charge and relates to most annuity investments. | Ongoing | % | Implicit |
| Acquired Fund Fees and Expenses | Line item in a fund-of-funds prospectus that shows the operating expenses of the underlying funds. | Ongoing | % | Implicit |
| Surrender and Transfer Fees | Charged to an investor for early withdrawal from an annuity investment. | Transactional | $ or % | Explicit |
| Short-Term Trading/Redemption Fees | Charged to an investor when money is withdrawn from a fund in a short period of time. | Transactional | $ or % | Explicit |
| Plan Administration/Record-keeping Fees | The expenses for operating and administering retirement plans may be passed along to participants. These expenses may be in addition to the annual operating expenses of the investments. | Ongoing | $ or % | Varies |
- Fees may be incurred on a regular basis, referred to as ongoing fees, or charged for specific transactions, referred to as transactional fees.
- Fees can be paid in flat-dollar amounts, in asset-based amounts or a combination of the two. Providers may set specific dollar amounts for a specified service or services. Asset-based fees are calculated as a percentage of assets. For example, if an asset-based fee of 0.25% is applied to a plan account with a balance of $10,000, the total fee amount is $25 [$10,000 X 0.25]. For an account balance of $80,000, with the same expense charge of 0.25%, fees would total $200 [$80,000 X 0.25].
- Fees are implicit when the expense is built into the net-asset value or unit value of a fund. For example, sometimes plan record-keeping and administrative expenses are included as part of a fund’s expense ratio. These are implicit fees because the unit values are reduced by the amount of these administrative costs, and such costs are not shown as a dollar withdrawal amount on participant statements. In either case (explicit or implicit), when the participant pays the fees, their returns are reduced.
