How to Find & Calculate MassMutual 401(k) Fees

If you have questions about MassMutual 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 a MassMutual 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 MassMutual’s pricing works, how much you’re paying, and how your fees stack up.

Let's dive in.

What are Average MassMutual 401(k) Fees?

In our most recent Small Business 401(k) Fee Study, we found that MassMutual plans cost small businesses an average of 1.81% of plan assets each year, with their admin fees totaling about $492.48 per participant.

While their per-capita admin fee is already above the study average of $422.30, that number can grow much higher due to the way these fees are charged.

In our experience, about 80% of admin fees charged by MassMutual 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 usually charged as a percentage of plan assets. That means plan participants will automatically pay MassMutual 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 MassMutual 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 later.

How to Find & Calculate MassMutual 401(k) Fees

To understand how much you’re paying for your MassMutual plan, I recommend you sum their administration and investment fees 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 MassMutual 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 MassMutual 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 MassMutual 401(k) fees, you’ll need 2 documents:

• MassMutual Disclosure Statement: this document contains plan-level information on the direct fees MassMutual is charging, as well as countless pages on all the indirect fees they may or may not be charging. The Department of Labor (DOL) requires this document to be provided to the employer sponsoring the 401(k) plan. A copy can be found on the MassMutual employer website.
• Plan Service Review: this document provides a breakdown of the fees, performance, and balance for each fund in your 401(k) plan. These are also sent each year, and can be found on the employer website.

Once you’ve gathered all the necessary documents, you’re ready to move on to step 2.

Step 2 – Locate MassMutual’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.

With MassMutual, these are displayed as a hard-dollar figure in their “MassMutual Disclosure Statement”.

Most often, direct fees are only a small portion of the 401(k) administration fees charged by MassMutual. The company makes most of their money via “indirect” fees. We’ll show you how to uncover those next.

Step 3 – Uncover MassMutual’s Hidden 401(k) Fees

In our experience, the vast majority of MassMutual administration fees (80%) are paid from the fund expenses of plan investments. These “indirect” fees come in two basic types:

1. 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:
1. 12b-1 fees – usually compensate a broker or insurance agent.
2. Sub-Transfer Agency (sub-TA) fees – usually compensate a recordkeeper.
2. 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 MassMutual fee disclosure, which makes them really easy to overlook. Instead, they are disclosed as a percentage of assets in the “Fee Schedule” section of the “Plan Service Review” document:

In step 4, you’ll multiply these percentages by the applicable fund balance to calculate the indirect fees charged by MassMutual.

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 MassMutual Disclosure Statement and Plan Service Review documents into the spreadsheet. The formulas will automatically calculate your indirect fees.

Next, we need to add your direct fees.

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 MassMutual plan. $11,360.74 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 0.92% ($11,360.74/$1,237,080.17).

Also Evaluate Your Administration Fees on a Per-Capita Basis

After you have calculated your all-in fee, we recommend you take a quick look at your MassMutual administration fees on a per-capita (i.e., headcount) basis.

The reason?

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 its $25,611.64 all-in fee (1.58% of plan assets) was only a bit above the study’s 1.40% average, its $2,521.81 per capita administration fee ($17,652.64/7 participants) was about six times average!

To calculate your per-capita administration fees, simply divide the administration fee total from your spreadsheet by the number of participants in your plan. In our example, this number is $475.27 – which is quite a bit higher than participants could be paying with a low-cost 401(k) provider.

Don’t Let Your MassMutual 401(k) Fees Get Out of Hand

By now, you should have a complete breakdown of your MassMutual 401(k) fees and how they’re being charged.

Even if yours are below average now, MassMutual’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.