Why Asset-Based 401(k) Admin Fees Are a Problem – And What You Can Do About It
Fees A lot of employers don’t think too much about how their 401(k) administration fees are structured. If the costs seem reasonable and the provider is doing its job, why fix what isn’t broken? But here’s the problem: many 401(k) providers charge administration fees as a percentage of plan assets, and that setup can quietly siphon thousands—sometimes hundreds of thousands—of dollars away from participants’ savings over time. Worse yet, it can expose plan sponsors (that’s you, employers!) to major fiduciary liability if those fees are deemed excessive. So, let’s break it down: How do asset-based fees hurt participants? What’s the legal risk for employers? And what’s a smarter way to structure 401(k) fees? The Problem with Asset-Based 401(k) Fees Let's compare two 401(k) plans, each with 50 participants and $1 million in plan assets. They pay their 401(k) provider the following fees for identical administration services: Plan 1: Pays a flat fee ($2,500 base + $50 per participant) ...