The Real Cost of “Free” 401(k) Plans

Business owner reviewing 401(k) retirement plan details on laptop in office setting.

Understanding Retirement Plan Fees — What Every Business Owner Should Know

When I speak with business owners about their 401(k) plans, one concern comes up again and again: fees.

They know they're paying something. They just don't know how much, to whom, or whether it's fair.

And honestly? That's not their fault.

Retirement plan pricing is often buried under layers of complexity, vague disclosures, and hidden revenue-sharing agreements. But as a fiduciary advisor, I believe transparency isn't just a regulatory requirement — it's a core value.

Let’s walk through the types of fees hiding inside most plans, what they mean for you as a business owner, and how to take control.

The Real Cost of "Free" 401(k) Plans

You may have been pitched a plan that sounds inexpensive or even free. But as with most things in finance, there's no such thing as truly free. The fees are just shifted from the employer to the participants — and over time, those costs can erode retirement savings in a big way.

If you're a plan sponsor, it’s your fiduciary responsibility to ensure all plan fees are reasonable. But to do that, you first need to understand how fees work.

Key Fee Categories to Know

• Administrative Fees
These cover core plan operations — document prep, compliance testing, Form 5500 filing, and more. They're often charged by the recordkeeper or TPA, typically as a base fee plus a per-participant cost. Many business owners choose to pay these directly, especially in the first 3 years when tax credits may cover startup costs.

• Recordkeeping Fees
Two common pricing models:
- Flat-fee per participant: Predictable and equitable, regardless of account balance.
- Asset-based: Charged as a percentage of plan assets. These grow as balances grow — which can quietly become expensive, especially for high-balance participants like owners.

• Investment Advisory Fees
These include your advisor’s compensation and, often, the fund expenses (expense ratios) embedded in investments.
It’s important to know:
- How your advisor is paid (flat fee, asset-based, or commissions)
- Whether they’re serving as a fiduciary
- What you’re getting in return (hands-on guidance? committee training? employee education?)
If you’re paying for fiduciary expertise, you should receive proactive support — not just a quarterly report.

• 3(16) Fiduciary Services (Optional)
Some recordkeepers and TPAs offer these services to reduce your administrative burden. It may include signing the Form 5500, sending required notices, and monitoring compliance. They usually come at a higher fee but may be worth it if you’re short on time or internal resources.

• Custodial & Transaction Fees
These include the costs of holding and trading assets, as well as participant-level charges for things like loans or withdrawals. Some may be bundled into recordkeeping fees; others are itemized.

• Audit & Legal Fees
Plans with 100+ participants require a CPA audit. You may also face legal costs during corrections or compliance issues. These fees are often overlooked until they’re urgent.

Hidden or Indirect Fees: The Silent Drain

Some of the most damaging fees aren’t obvious. Revenue-sharing agreements between fund providers and recordkeepers, sub-TA fees, and other kickbacks may be legally disclosed — but not clearly explained.

These are usually buried in the 408(b)(2) disclosure. When I review these for new clients, we often uncover fees that nobody realized were being paid.

Your Fiduciary Responsibility (and Opportunity)

Under ERISA, you’re required to monitor fees and ensure they’re reasonable. That doesn’t mean choosing the cheapest option. It means understanding what you’re paying, why, and whether it aligns with the value you're receiving.

One of the best tools here is fee benchmarking — a formal process of comparing your plan’s pricing and services against similar providers. Ideally done every 3 years, it gives you the data to renegotiate fees or upgrade services.

Why This Matters

Every dollar spent on fees is a dollar not growing toward retirement.

For business owners, the consequences are twofold: you may be overpaying as a participant, and exposing yourself to fiduciary risk as a sponsor.

But here’s the upside: when you understand your fees, you take back control.

You can negotiate better pricing. You can offer a more competitive benefit. You can reduce your risk. And you can show your employees that their future matters.

Final Thoughts

401(k) plans aren’t just compliance boxes to check - they’re tools for building real wealth. Understanding how fees impact outcomes isn’t optional. It’s part of being a responsible, empowered business owner.

If you're unsure what you're paying—or whether your 401(k) plan is truly serving your business—let’s talk. I offer complimentary reviews to help you reduce your fiduciary exposure, uncover hidden costs, and create a smarter, more engaging retirement benefit for your employees.


By Elena Samofalova, CRPC®

Chartered Retirement Planning Counselor
Fiduciary Advisor · Retirement Income Planner