Definition of Per-Participant Charges

Per-participant charges are administrative fees assessed to a retirement or investment plan based on the number of individual participants. These fees cover the costs of recordkeeping, compliance, and plan management.

For example, a 401(k) provider may charge $30 per participant annually to cover administrative expenses, regardless of the account balance.

Purpose of Per-Participant Charges in Financial Plans

Per-participant charges serve several functions, including:

• Covering recordkeeping and account administration costs.
• Ensuring compliance with regulatory requirements.
• Providing plan participants with ongoing support and account management services.
• Helping employers maintain low-cost retirement and investment plans.
• Ensuring fair fee distribution among plan members.

How Per Participant Charges Work

Fee Structure

• Fees are charged based on the number of participants in a plan, not the total assets.
• Example: A retirement plan with 100 participants and a $50 per participant charge results in a total fee of $5,000.

Impact on Retirement Savings

• Fees reduce individual account balances over time.
• Higher fees can diminish investment growth potential.
• Example: A participant with a $10,000 balance paying a $50 annual charge effectively loses 0.5% of their savings each year.

Employer vs. Participant Costs

• Some plans require employers to cover these charges, while others deduct fees from participants' accounts.
• Example: A small business absorbs per-participant charges to keep costs lower for employees.

Types of Plans with Per Participant Charges

Employer-Sponsored Retirement Plans

• Includes 401(k) plans, defined contribution plans, and pension funds.
• Example: A 403(b) retirement plan charges $40 per participant annually for compliance and management.

Investment Accounts

• Certain brokerage accounts charge participant-based fees for account maintenance.
• Example: A group investment fund applies a $20 per participant administrative charge.

Health and Benefit Plans

• Health savings accounts (HSAs) and flexible spending accounts (FSAs) may have per participant fees.
• Example: An employer-sponsored HSA deducts a $10 monthly per participant charge for administration.

Per Participant Charges vs. Asset-Based Fees

Feature	Per Participant Charges	Asset-Based Fees
Definition	Fixed fee per individual in a plan	Fee-based on a percentage of total assets
Cost Basis	Number of participants	Total investment value
Example	A retirement plan charges $30 per participant	A mutual fund charges 0.75% of total assets

Example: A company with 200 employees and a $40 per participant charge pays a total of $8,000 annually, while an asset-based fee of 0.5% on a $2 million plan results in $10,000 in fees.

Advantages and Disadvantages of Per Participant Charges

Advantages

• Predictable costs regardless of investment performance.
• Equally distributed fees among all participants.
• Often lower for small accounts compared to asset-based fees.

Disadvantages

• Can be a higher percentage of assets for small account balances.
• May discourage participation in retirement plans due to extra costs.
• Does not adjust based on market growth or account performance.

Related Terms

• Plan Administration Fees – Charges for managing and maintaining retirement plans.
• Recordkeeping Fees – Costs associated with tracking participant contributions and transactions.
• Fiduciary Services – Professional management of retirement plan compliance and oversight.

Interesting Fact

Studies show that retirement plans with lower per-participant charges encourage higher participation rates, as employees are less concerned about fees eroding their savings.

Statistic

According to the U.S. Department of Labor, over seventy percent of small business retirement plans use per-participant charges instead of asset-based fees to keep costs predictable and fair for all employees.

Frequently Asked Questions (FAQ)

1. How are per-participant charges determined?

Fees are set by plan providers based on administrative costs, compliance needs, and the number of participants.

2. Do per-participant charges apply to all retirement plans?

Not all plans charge per-participant fees—some use asset-based fees or a combination of both.

3. Can employers cover per-participant charges instead of employees?

Yes, some employers absorb these costs to reduce financial burdens on employees.

4. Are per-participant charges tax-deductible?

For businesses, per-participant charges may be deductible as a plan administration expense.

5. How can participants reduce the impact of per-participant charges?

Choosing plans with lower fees, negotiating employer contributions, and consolidating accounts can help minimize costs.