A look at 401(k) Transamerica fees 

Among the many retirement plans available, the 401(k) plan remains the most renowned and most preferred retirement plan in the US. There are thousands of companies that offer the 401(k), and one of these companies stands out: Transamerica.  

Transamerica is a company with yet another long and storied history, and it has several different branches and subsidiaries. It’s a holding company for various investment firms and life insurance companies that operate mostly out of major US cities. The one handling their 401(k) plan is Transamerica retirement advisors, LLC.  

In this article, InvestmentNews delves into whether the 401(k) from Transamerica is a viable retirement plan. We’ll discuss the history of the company and answer questions like what’s behind Transamerica’s fees? How do you withdraw from a Transamerica 401(k)? Get the answers to these and more.  

Does Transamerica 401(k) charge a fee? 

Yes. Almost 100% of Transamerica’s fees are revenue-sharing or variable annuity wraps. These are “hidden” fees in their 401(k) plan that can reduce the returns of plan holders.  

Plan sponsors and plan participants might not be aware of Transamerica’s 401(k) fee setup. Typically, they would be charged a percentage of the plan’s assets. This means that plan participants will progressively pay Transamerica increasing administration fees as the plan assets earn and grow, while receiving the exact same level of service.  

How to find and calculate Transamerica 401(k) fees 

To know exactly what investors are paying for their Transamerica 401(k) fees, it’s recommended that the administration and management fees are expressed as an “all-in” fee. Expressing this as a percentage of plan assets, and as dollars per participant, will make it easier for investors to see the cost of the Transamerica plan compared to competing 401(k) providers and/or industry averages. 

Step 1. Collect the necessary information 

First, download this pre-generated spreadsheet to help you make the computations. The formulas for determining the all-in fees are already on the spreadsheet – your plan information is all that’s needed.  

Step 2. Get the necessary documents 

Those who have Transamerica 401(k)s need these three documents:  

1. Transamerica 408(b)(2) Fee Disclosure: The Department of Labor regulations require Transamerica to provide employers with this document. It’s also called “Information on Fees and Charges Associated with the Investment Choices in Your Plan”. This document details plan-level information about the administration fees charged by Transamerica. You can find this on the Transamerica employer website. 

2. TPA Services Agreement: Transamerica does not deliver third-party administration (TPA) services for all their plans. In these cases, an unrelated, often local TPA delivers these services. If you’re using an outside TPA, factor their pricing into your Transamerica fee calculation. The fees charged by your TPA are typically disclosed in a services agreement or invoice.  

3. Statement of Assets Report: This is a spreadsheet you can download from the Transamerica employer website. It gives the breakdown of how much money is invested in each fund in the 401(k) plan. 

Step 3. Find the Transamerica 401(k)’s direct fees 

The fees for a 401(k) are administration fees that can be direct or indirect: 

• direct fees can be taken from participant accounts or paid from a corporate bank account 
• indirect fees are paid from investment fund expenses, which reduce the fund’s annual returns 

Direct fees are the most transparent and most familiar. Unfortunately, Transamerica doesn’t typically charge any of their fees in this manner. 

Direct fees are paid only if the TPA invoices clients directly. To find these, refer to the TPA Services Agreement or a recent invoice.  

Step 4. Find Transamerica’s hidden 401(k) fees 

About 97% of Transamerica’s administration fees 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. These fees reduce the investment returns of plan participants and compensate plan service providers. These fees can be of two types: 

• 12b-1 fees – fees paid to a broker or insurance agent 
• sub-transfer agency (sub-TA) fees – fees paid to a recordkeeper 

2. wrap fees: insurance companies often use variable annuities instead of mutual funds as 401(k) investments. A variable annuity is 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 significantly, often more than 1%.  

Transamerica does not disclose revenue sharing nor wrap fees as hard dollar amounts on the Transamerica fee disclosure, making them very easy to overlook. Typically, they are shown as a percentage of assets in a 9-column table on pages 2-6 of the Transamerica fee disclosure document. 

Wrap fees are often listed in the fourth column, labeled as “Net Total Separate Account Maintenance / Administration Charge Received by Transamerica and its Affiliates”.  

Meanwhile, revenue sharing fees can be found in the second and third columns (labeled as “12b-1 Fees…” and “Other Fees…” respectively), which must be added to determine total revenue sharing fees. 

The picture below shows how it might appear:  

Step 5. Calculate the all-in Transamerica 401(k) fee 

In the spreadsheet with the pre-inserted formulas, enter the fund information from your Transamerica 408(b)(2) and Statement of Assets documents. The spreadsheet should automatically calculate the indirect fees. The picture below is only a sample of the possible amount Transamerica charges as indirect fees.  

If Transamerica charges a direct fee, enter the amount into the spreadsheet, then add the TPA’s annual fee. The final all-in fee may look something like this:  

In the above example, the all-in fee amounts to $96,061.79. For a clearer picture of how this fares compared to other plans and plan providers, try to express the all-in fee as a percentage. In this case, the all-in fee is 1.6% of total plan assets ($96,061.79 ÷ $5,854,351.91). 

Evaluate your plan’s fees on a per-capita basis 

After getting the plan’s all-in fee, it’s recommended that investors take a quick look at Transamerica’s administration fees on a per-capita or headcount basis.  

It’s helpful to look at the administration fees on a per-plan holder basis, since excess fees that outpace the 401(k) provider’s level of service might not be apparent. This is especially true if they’re evaluated on an all-in basis with investment expenses and the plan has plenty of valuable assets and asset classes. 

To calculate per-capita administration fees, simply divide the administration fee total in the spreadsheet by the number of plan participants. Let’s assume that the plan has 48 participants; that amounts to $862.66 – which is higher than what a low-cost 401(k) provider would typically charge. 

Can I reduce my Transamerica 401(k) fees? 

Yes, it’s possible to reduce the cost of a 401(k) from Transamerica. There are three options: 

1. Make a request with the plan sponsor 

Employees can ask their employers to take another look at the other fund choices in the Transamerica 401(k) plan. This may require some research to see if there are better, lower-cost options.  

Employers have a fiduciary duty to practice good investment management and find the best investments at reasonable fees. They also have a continuing obligation to find better options and replace any overpriced funds when needed. The case of Tibble v. Edison shows the consequences on an employer who failed to meet their fiduciary duty. 

2. Make the switch to index funds 

If the Transamerica 401(k) asset allocation is focused on actively managed funds, the 401(k) could be getting lower returns for higher fees. Should investments in the Transamerica 401(k) earn less than the average market returns, then investors may replace them with index funds, if there are any. 

3. Move your 401(k) assets to an IRA  

As a final option, should you find that your Transamerica 401(k) investments have high fees, roll over your Transamerica funds into an IRA with low-cost funds, when you are eligible for an account distribution.   

Most other IRA providers can offer target date funds, low-cost index funds, and even ETFs at lower fees. Employees should continue making contributions if they stay with the plan sponsor, to maximize the employer match. 

 Can I withdraw money from my Transamerica 401(k)? 

Investors have the prerogative to withdraw money from their 401(k), regardless of the provider. Just remember, all 401(k) plans are still subject to rules like penalties on early withdrawals. As with all 401(k)s, you get an additional 10% penalty on withdrawals made before you are aged 59½. 

There are exceptions to penalties for early withdrawals, however. For instance, there’s the Rule of 55, which states that a plan holder can get 401(k) distributions without penalties if they’re aged 55 and leave or lose their job.  

Hardship withdrawals are another topic; those who are victims of domestic abuse or have had their homes damaged or lost in a calamity may take money from their 401(k)s without penalty. 

Transamerica’s track record 

To understand whether Transamerica’s 401(k) plan is a good investment option, we must look at the company’s track record. Transamerica is one of the largest and oldest investment, insurance, and retirement planning companies in the United States. Transamerica had its humble beginnings in San Francisco, in October 1904. At that time, its founder, Italian migrant Amadeo Pietro Giannini, founded its precursor, the Bank of Italy.  

Giannini had a reputation for helping migrant farmers and small shop owners, with the goal of making financial services available to everyone. A couple of years later, San Francisco experienced a double-whammy of a disaster: the devasting earthquake of 1906, which then caused a massive fire that razed the city. In the aftermath, Giannini set up shop on the docks of San Francisco harbor. He would give out loans to embattled farmers and merchants, asking for only a handshake – their personal reassurance to pay back their loans – as collateral.  

In 1928, Giannini’s business grew to the point where he was able to put up Transamerica corporation, a holding company for his businesses. The businesses included: 

• Bank of America 
• Bank of Italy 
• National Bankitaly Company 
• Bancitaly Corporation 
• California Joint Stock Land Bank 
• Banca d’America e d’Italia 

The company even went on to put up offices for its life insurance company locations throughout the US. At that time, Transamerica corporation held assets of over $1.5 billion ($27 billion in today’s money).  

Here are a few of Transamerica’s most notable milestones:  

• 1972 – the company constructed the iconic skyscraper, the Transamerica Pyramid, in San Francisco 
• 1980s – Transamerica divests its interests in other industries like film, airlines, and car rentals by selling its other Transamerica companies like United Artists, Transamerica airlines, and Budget Rent-A-Car, respectively 
• 1999 – before the millennium, Transamerica was acquired by Dutch insurance company Aegon 
• 2023 – the company redirects its focus by positioning itself as America’s leading middle market life insurance products and retirement company 

Here’s a short video on how the iconic Transamerica Pyramid was built: 

As can be seen in its 96-year history, Transamerica has demonstrated sound management by diversifying for growth, then eventually divesting from other industries to focus on its core competencies. This brief look at the company’s history shows investors that Transamerica is a good choice of 401(k) provider. 

Is the Transamerica 401(k) worth it?  

The 401(k) is still regarded as the best investment for employees, but this may not apply to the plan offered by Transamerica. Given its relatively high fees compared to other providers, it may not be worth it.  

The tricky bit about this tax-deferred retirement account is that it’s difficult to judge its viability with a definite yes or no. This 401(k) may not be for everyone, but there may still be some potential investors who will find the 401(k) by Transamerica a viable option.  

If the fees are manageable, and after deducting that and the federal income tax from distributions, plan holders find them palatable, then it’s worth it to them. Ultimately, the final verdict on Transamerica 401(k) depends on the individual investor and their financial goals, needs, and circumstances.  

While the debate between choosing a 401(k) and the pension plan was settled a long time ago, not all 401(k)s are made equal. Despite its potentially high fees, the Transamerica 401(k) may yet prove to be a viable retirement plan. The key is to leverage the investments in the plan with higher returns and lower fees. Sometimes it can be a matter of practicing good portfolio management to maximize a Transamerica 401(k).  

For as long as the fees of the Transamerica 401(k) do not exceed the industry average of 2%, investors should reap a reasonable return and build a substantial nest egg. 

Get more news and information about retirement plans, along with other important investment topics, here on InvestmentNews.