How to Tell if Your 401(k) Fees Are Too High

Nobody sends you a bill for a 401(k)'s largest cost.

The administration charge might land on your desk as an invoice. The bigger piece comes out of investment returns before anybody sees a balance, so a plan can sit above market pricing for years with nothing on paper to show it.

Say you're Ray. (Ray's made up, though we have some version of this call most months.) He's 54, runs a 38-person HVAC and plumbing company in Westerville, and set the 401(k) up nine years ago. Thirty-one of his people are in it and it holds about $4.1 million. At the fall enrollment meeting a service tech asked him what the plan costs to run. Ray said he'd find out.

Where your plan's numbers are written down

Two documents carry them, and Ray already had both. Skip ahead if yours are sitting in a folder somewhere.

The 408(b)(2) service provider disclosure goes to whoever makes decisions for the plan, which at a company Ray's size is often the owner. Any provider expecting $1,000 or more has to describe its services in writing and lay out what it's paid, including money it collects from somewhere other than the plan, like a share of a fund's expense ratio. If you can't find your copy, ask the provider for one, because it's a document they were required to furnish.

The 404a-5 participant disclosure goes to employees once a year, with a comparison chart of every investment in the menu and its total annual operating expenses, shown as a percentage and as dollars per $1,000 invested. Whoever administers your plan prepares it, so they'll have the current version.

Together those two cover the administration charge and the investment expenses, which are what people mean when they ask what the plan costs. What a 401(k) Really Costs a Small Business covers how that bill gets divided.

What counts as too high

Take the dollars the plan paid for administration last year, add the dollars the fund menu charged, and divide the total by what the plan holds. That's your all-in percentage.

Ray's came to 1.04%. On $4.1 million that runs about $42,640 a year, which works out to roughly $1,375 for each of his 31 participants. Most of it sits in the fund expense ratios, where nobody gets billed for anything. The Department of Labor's own illustration of what that does over time: a 1% difference in fees and expenses over 35 years cuts an account balance at retirement by 28%.

Morningstar matched investment data to 2023 Form 5500 filings and put the median total plan cost at 0.75% of assets for plans holding $25 million or less, against 0.27% for plans over $500 million. 27% of small plans came in above 1%.

So Ray is paying somewhere around $11,890 a year more than a median plan his size. Fixed costs spread across $4.1 million land harder than the same costs across $500 million, which is part of why small plans cost more per dollar.

The percentage on its own doesn't settle anything, because what matters is what comes back for it. Can you name the services the plan is buying, and point to the last time anybody reviewed them?

What usually drives the number up

A fee quoted as a percentage was small when the plan was new. Ray's plan has grown every year since 2017, and the charge against it grew at the same rate, without anybody deciding that it should.

The same fund is often sold in several versions at different prices, and the cheaper ones open up once a plan crosses an asset threshold, usually only when somebody asks. Funds also get replaced and repriced over the years, so a lineup picked in 2017 and left alone since is carrying 2017 pricing.

Part of a fund's expense ratio can also be routed back to help pay for recordkeeping. Revenue sharing is permitted and it gets disclosed under the same service provider rule, but it makes the administration line look smaller than what the plan pays in total. Is Your Company 401(k) Any Good? covers what the plan's annual filing will and won't tell you.

What Ray does with it

He asks his provider for an all-in number, in dollars and as a percentage of plan assets, and for the services that number buys. Then he asks two other firms to quote the same plan on identical information, because quotes built on different facts don't compare. Then he writes down what he looked at and what he decided.

That last step matters as much as the rest. The Department of Labor doesn't ask you to find the cheapest plan available. It asks you to run a process, keep running it, and be able to show it later on, so a documented review that ends with "we're priced fairly for what we get" counts.

Ray's review is on the calendar for January. He hasn't decided anything yet, which is the right place to be in October.

If you want your own plan read first, the ClearMind 401(k) Scorecard pulls your most recent Form 5500-SF and the overall Plan Score comes back free in about a minute. Austin Wolfe and Joe Anderson run Workplace Retirement at ClearMind Capital here in Columbus, and if you'd rather start with the fee conversation, you can book a call here.

Common questions

What is a reasonable 401(k) fee?

There's no legal threshold. ERISA asks whether what the plan pays is reasonable for the services it receives, which makes it a comparison rather than a number. Morningstar's 2026 report is a usable reference point, putting the median total plan cost at 0.75% of assets for plans holding $25 million or less, using 2023 filings.

How do I find out what my 401(k) plan charges?

Two documents carry it. Your 408(b)(2) service provider disclosure lists what each provider is paid, including compensation it receives from sources other than the plan. Your 404a-5 participant disclosure shows every investment's total annual operating expenses as a percentage and as dollars per $1,000 invested. If the service provider disclosure isn't in your files, ask your provider for a copy.

Can we lower our 401(k) fees without changing providers?

Often, yes. The common one is moving to a cheaper share class of a fund already on the menu, which changes the price without changing the investment. Repricing administration after the plan has grown is the other. Running a benchmarking review doesn't commit you to a conversion.

Is there a legal limit on 401(k) fees?

No. ERISA requires that plan expenses be reasonable for the services the plan receives, and that the people running the plan select and monitor providers and investments prudently. A number above the median is not a violation by itself. The exposure comes from not being able to show how you got there. Specific legal questions belong with an ERISA attorney.

Written byAustin Wolfe & Joe AndersonClearMind Capital | Workplace RetirementView bio →

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