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2018 Small Business 401(k) Fee Study – What’s Too High? Blog Feature
Eric Droblyen

By: Eric Droblyen on November 28th, 2018

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2018 Small Business 401(k) Fee Study – What’s Too High?

401(k) Fees | Provider Shopping | Fiduciary Responsibility

Employers have a fiduciary responsibility to ensure the fees paid by their 401(k) plan participants are “reasonable” and not subject to unnecessarily excessive fees. To do that job, employers must benchmark their 401(k) fees - basically, compare them to industry averages and/or fee charged by competing 401(k) providers. Sounds straightforward, but this information is hard to find and often harder to compare on an apples-to apples basis.

Required public filings – most notably the Form 5500 – provide only snippets of 401(k) fee data. And 401(k) providers are of little help as few disclose fees online or in published documents. Even worse, DOL-mandated fee disclosures are often a tangle of “direct” fees deducted from participant accounts and “indirect” fees paid by plan investments. In short, following the money is a difficult job even for those employers willing to invest the time and energy to do so.

My firm is trying to help. Four years ago, we launched a no-cost fee comparison service to help employers total and benchmark their 401(k) fees. When this service is requested, we will calculate a 401(k) plan’s “all-in” fee (service provider fees + investment expenses) and then compare the total to a comparable plan with Employee Fiduciary. Since launching our service, we’ve helped hundreds of employers evaluate their 401(k) fees. In 2016, we summarized the all-in fees we found for 121 401(k) plans with less than $2 million in assets in a small business 401(k) fee study. This study was very popular.

It’s time for a new study based on more recent 401(k) fee comparisons. Below is a summary of the fees we found for 102 401(k) plans with less than $5 million in assets. More detailed fee information for each plan – including fees paid by each investment - can be found on our website’s fee comparison page.

A new data point for this study is per-head 401(k) provider fees. Employers should consider this information when benchmarking their 401(k) fees because plan administration services – generally related to participant recordkeeping and Third-Party Administration (TPA) - scale with participant count, not assets. That means administration fees should be evaluated on a participant basis. Otherwise, they can easily outstretch the 401(k) provider’s level of service as plan assets grow.


We know, it’s hard to believe 401(k) pricing can be this low!

Check out our Pricing page to see how we can reduce your 401(k) fees by 70% or more!

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Fee study

Provider

# of plans

Averages

Plan assets

Participants

Provider Fees(1) (per participant)

All-In Fee %

ADP

12

$1,006,704.58

31

$331.14

1.85%

American Funds

13

$652,170.97

14

$808.42

1.97%

Ameritas

1

$784,420.38

47

$291.99

2.04%

Ascensus

4

$728,548.33

21

$794.84

2.05%

Empower

5

$2,932,544.42

38

$482.70

1.09%

EPIC Advisors

1

$180,128.97

11

$318.86

2.39%

First Mercantile

1

$1,200,251.33

20

$1,182.51

2.33%

John Hancock

16

$1,076,512.59

30

$655.56

1.98%

MassMutual

4

$879,630.76

23

$631.05

3.37%

Merchants

1

$305,221.88

4

$1,327.50

2.47%

Morgan Stanley

1

$1,011,155.82

8

$692.48

1.00%

Mutual of America

1

$482,664.59

28

$285.85

1.97%

Mutual of Omaha

1

$316,534.69

8

$928.58

2.87%

Nationwide

4

$719,073.86

29

$482.43

2.74%

OneAmerica

2

$2,813,945.03

61

$425.01

1.41%

PAi

5

$529,411.24

10

$464.11

2.04%

Paychex

14

$664,472.09

15

$459.92

3.10%

Pentegra

1

$1,124,832.17

18

$609.59

1.09%

PNC

1

$3,117,904.03

30

$608.00

0.93%

Prime Plan Solutions

1

$439,754.34

6

$458.75

0.96%

Principal

5

$2,194,007.59

36

$822.62

1.49%

Securian

1

$813,790.18

45

$339.62

1.96%

Sentry Insurance

3

$603,039.37

22

$401.99

2.21%

Sharebuilder

1

$433,727.83

6

$850.96

1.28%

T.Rowe Price

1

$1,450,309.00

55

$124.89

0.93%

Transamerica

1

$461,509.95

9

$1,104.48

2.60%

Voya

1

$1,625,825.48

7

$2,521.81

1.58%

Averages

 

$1,037,836.81

24 

$603.86

2.10%

(1)Provider Fees - include all of the direct and indirect fees paid to plan service providers. Non-provider investment expenses were excluded.

Key findings

We made the following observations during our study:

  • The average all-in fee for the plans studied was 2.10%, while the average 401(k) provider fee was $603.86 per participant.
  • In general, insurance companies are the most expensive 401(k) providers.
  • 401(k) provider fees should be evaluated for reasonableness on a headcount basis to ensure asset-based administration fees don't outstretch the 401(k) provider’s level of service.

Comparing these fees to Employee Fiduciary

In a 2014 presentation, Yale professor Ian Ayres cited Employee Fiduciary fees, paired with low-cost Vanguard funds, as a baseline for small business 401(k) fees. So how does Employee Fiduciary stack up against the providers studied?

 

Plan assets

Participants

Provider Fees (per participant)

All-In

Fee %

Employee Fiduciary

$1,037,836.81

24

$97.09

0.34%

*Assumes a common Employee Fiduciary fund lineup with an average investment expense of 0.1190% (11.90 bps) annually.

The lesson – it pays to shop!

Look, I get it. Shopping for a 401(k) plan is not going to make anybody’s list of fun things to do – most 401(k) fiduciaries just want to get this chore off their plate. It can be very easy to do that by buying a 401(k) plan from a provider you see on TV or giving into a salesperson sent by your company’s payroll provider.

Don’t do it! It’s worth your time to shop around. As our study shows, the fees for small business 401(k) plans can vary dramatically and the consequences for buying an over-priced 401(k) plan are great – participants must work longer to meet their retirement savings goal while fiduciaries risk personal liability.


Are you paying too much for your company’s 401(k) Plan?

Check out our 401(k) Fee Comparison page to compare our fees to 40+ competitors or request a fee comparison for your plan!

Compare our Fees
 

About Eric Droblyen

Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.

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