All About 401(k) Fees

All About 401(k) Fees: What You’re Really Paying For

If you offer a 401(k) plan at your company, you’re probably paying fees—but do you know where that money goes? Understanding 401(k) fees is key to making smart decisions and protecting your employees’ retirement savings.

What Are 401(k) Fees?

Most 401(k) plans include three types of fees:
Investment Fees – These come from the funds your employees invest in, like mutual funds or index funds. They’re often shown as an expense ratio, which is a percentage taken from the investment to cover costs.

Administrative Fees – These pay for things like recordkeeping, account management, and moving money in and out of the plan.

Fiduciary & Consulting Fees – These cover legal, accounting, and advisory services to help manage the plan and keep it compliant.

Sometimes these fees are taken directly from the plan’s assets. Other times, they’re built into the cost of the investments.

What’s a 401(k) Expense Ratio?

An expense ratio is the percentage of money taken from an investment to pay for managing it. For example, if a mutual fund has a 1% expense ratio, that means 1% of the money invested goes toward fees.

How Much Do 401(k) Fees Cost?

Most plans charge between 1% and 2% of the total money saved. But some plans can go as high as 3.5%, which can seriously hurt your employees’ ability to save for retirement. Even a small difference matters. Over 35 years, an extra 1% in fees can shrink an employee’s retirement savings by about one-third ¹.

Who Pays the Fees?

Employers: You can choose to pay administrative or fiduciary fees, or both. Some employers also pay investment fees, but that’s less common. If you work with a 401(k) advisor, they may charge quarterly fees based on the total assets in the plan.

Employees: Employees usually pay investment fees and sometimes administrative fees. These are often taken from their account balance, so it’s important to keep them reasonable.

What’s a Reasonable Fee?

As a 401(k) fiduciary, you’re legally responsible for making sure your plan’s fees are fair. Under ERISA, you must act in your employees’ best interest. That includes keeping fees low and avoiding conflicts of interest.
But “reasonable” isn’t one-size-fits-all. You need to benchmark your 401(k) fees against similar companies to see how your plan compares.

How to Review Your 401(k) Fees

Here’s a simple checklist:

1. Get the Right Documents:

• Ask your provider for a 408(b)(2) fee disclosure. This document shows:
• All services provided
• Who is getting paid
• How much they’re paid
• Whether there’s revenue sharing involved

Also, gather invoices, contracts, and asset statements to get the full picture. With a clearer understanding of the true cost of your 401(k) plan, you’re in a better position to evaluate whether your plan is subject to potential conflicts of interest.

2. Know Who’s Getting Paid

Your plan may include:

• Third Party Administrator (TPA) – Handles day-to-day tasks
• Custodian – Holds assets and processes transactions
• Recordkeeper – Tracks accounts and investments
• Advisor – Helps manage the plan and educate employees
• Bundled Providers – Combine multiple services into one fee
  • If you see a fee for bundled service, that replaces the first three providers in this list.
• Other Third-Party Vendors: Your plan may also utilize the services of other vendors, including auditors, brokers, asset managers, or fund managers.

To get a complete picture of who you and your employees are paying, call your providers and ask who else is involved. This helps uncover hidden fees.

3. Calculate the Costs

Use your documents to figure out how much each provider is charging. You can calculate fees as a percentage of assets or in dollars.

4. Compare with Other Plans

Ask your advisor for a benchmarking report. Compare at least 100 similar plans to see where yours stands. Consider both cost and service level.

Should You Switch Providers?

If your fees seem high and the service isn’t great, it might be time to shop around. Document your findings and ask for proposals from other providers. You might find better service—or a better price.

Your Employees Are Counting on You

High fees can eat away at your team’s retirement savings. By understanding and managing your 401(k) plan costs, you’re helping your employees retire with confidence.

Let’s Untangle Those Fees

Not sure if your fees are fair? We can help you review your plan, benchmark it, and uncover hidden costs. Contact us today to schedule a consultation.

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