What Employers Should Know Before Evaluating 401(k) Retirement Plan Fees
Your business’ retirement plan expenses and your employees’ retirement outcomes are important criteria for plan sponsors to consider when selecting a retirement plan service provider. Taking stock of the expenses, your business and employees incur could result in savings for everyone.
Key takeaways
Reviewing 401(k) fees is both a smart business practice and an important fiduciary responsibility. Regular reviews can help manage costs, protect employees' retirement savings, and support compliance obligations.
Focus on value, not just price. The lowest-cost provider may not be the best fit if it doesn't deliver the services, features, and support your workforce needs.
Benchmark fees regularly. Comparing costs against industry standards or similar providers can help determine whether fees are reasonable and identify potential savings opportunities.
Understand where costs are being paid. Employers should evaluate how fees are shared between the business and plan participants, as those expenses can directly impact employee retirement outcomes.
Evaluate the full cost picture. Consider administrative, compliance, investment, and employer contribution costs when assessing the overall value of a retirement plan.
Investment fees matter. Reviewing investment expenses and fund lineup options can help lower participant costs while maintaining meaningful choice and flexibility.
A thorough fee review can benefit both employers and employees. The right plan balances cost, service, flexibility, and retirement outcomes.
Reviewing your retirement plan fees makes good business sense. It is also a plan fiduciary obligation if participants bear the cost from their retirement accounts, and one many plan sponsors may have neglected for some time. Done right, a fee review can help limit the cost of retirement plan administration and can also help protect your employees' savings and your own standing as a fiduciary.
The lowest-cost option isn't always the best one, and a number that looks high in isolation may be more reasonable given the services behind it.
A thorough fee review can uncover savings for your business and your employees, without sacrificing the plan features that matter most. Before you start comparing providers or renegotiating terms, review these frequently asked questions:
How can I review retirement plan fees?
Benchmarking your costs against industry averages or comparing them to what other providers charge for similar services is a common and important way to assess fees. If participants are bearing the provider’s cost from their plan accounts, it is also your fiduciary responsibility under ERISA to determine that the fees are reasonable, a facts and circumstances test which can make benchmarking important.
Whatever method you use, document it and keep the results in your fiduciary file. Most plan experts recommend benchmarking your fees at least every two to three years, or any time you consider switching providers.
How much of the tab are employees paying from their retirement accounts?
Take a closer look at how your provider's fees are split between you and your employees. Some employers absorb them entirely. Others pass them through to participant accounts. Knowing where you stand is an important factor in your review.
Can I reduce retirement plan administrative fees without cutting benefits?
Often, yes. A fee review uncovers redundancies or expenses that no longer reflect the plan's current needs. The key is evaluating cost alongside value, not treating them as the same thing. Whether you work with a bundled provider or a third-party administrator (TPA), the right structure should meet the needs of your workforce at a price that makes sense for your business.
What’s the difference between a bundled retirement plan provider and a TPA?
A bundled provider rolls recordkeeping, administration and fund selection into one package, which is simpler and often waives setup fees. A TPA keeps administration separate, trading simplicity for more flexibility in fund selection and plan design. The right choice depends on how much customization your business needs.
Breaking down the costs of retirement plan sponsorship
Once you're ready to evaluate, here's where to focus to compare plan administrative costs:
Setup and onboarding. Initial retirement plan setup typically runs between $500 and $3,000. Bundled providers may waive these fees, while TPAs may charge separately but offer greater flexibility in fund selection and plan design.
Ongoing administrative expenses. Plan administration and recordkeeping fees can significantly vary based on the provider and plan structure.
Compliance and testing. Plans without safe harbor design rules require annual nondiscrimination testing, and businesses with more than 100 eligible participants face mandatory audits that can run $10,000 or more1.
Employer matching contributions. Matching has become a standard workforce expectation. A common formula matches 100% of the first 3% of salary and 50% of the next 2%. Small employers with 100 or fewer employees may qualify for tax savings on those contributions.
Plan providers are required to disclose all their fees and have the documentation readily available to you and your participants. Your financial advisor or plan provider can help you work through the numbers and make sense of what you're looking at.
Investment expenses
As part of your fee review process, it is very important to remember that employers have a fiduciary duty to review fees associated with the investments made available for employees to choose from, as those costs can directly impact participants’ retirement savings. The investment lineup itself is a cost lever many employers overlook.
Providers that offer open-fund architecture, ADP among them, let you choose from thousands of nonproprietary funds instead of a fixed set of proprietary products. Managed carefully, that flexibility can bring down the overall cost of funds made available in your lineup without narrowing what employees can invest in. ADP's open-fund architecture gives you access to thousands of nonproprietary investment options that can help you build a lower-cost lineup without restricting employee choices.
A review that pays off
The right retirement plan delivers value for your business, your budget and your people. To learn more about your retirement plan options and how to make the most of your investment, contact an ADP Retirement Services specialist or call (800) 432-401K.
1 How much does a 401(k) cost an employer?
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take particular action. Questions about how laws, regulations, guidance, your plan’s provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
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