How Much Lower 401(k) Fees Can Grow Your Retirement Savings

January 26, 2023

There are few industries where the phrase “you get what you pay for” is less applicable than the 401(k) industry. Equally competent 401(k) providers can charge dramatically different fees for comparable administration services and investments. This variability is a big problem for employers – who have a fiduciary responsibility to protect the interests of plan participants by paying only “reasonable” 401(k) fees. Employers that fail to meet their responsibility can be personally liable for restoring participant losses due to excessive fees.

Why does this fiduciary responsibility exist? Because cost matters a LOT when saving for retirement. When 401(k) fees are paid from plan assets, they reduce the investment returns of plan participants dollar-for-dollar. The missed compound interest on these losses can cost a participant hundreds of thousands of dollars in retirement.

Given the erosive effect of 401(k) fees, I recommend employers keep their amount a minimum. In other words, not settle for “reasonable.” Every dollar not paid by their plan means more money accruing compound interest for participants. How much these savings can increase the future value of participant accounts can be shocking.

Cost Matters When Saving for Retirement

Jack Bogle - the founder of the fund company Vanguard – is an idol of mine. I cannot think another person who has done more to help the average American save for retirement than him.

Bogle's guiding principle was simple: costs matter. Fees reduce investment returns, so their amount should be kept to a minimum to maximize the power of compound interest over time.

How Much Lower Fees Can Increase Savings

To demonstrate how much cost matters when saving for a retirement, see the table below. It shows how much Employee Fiduciary lowered the “all-in” fee (administration fees + investment expenses) of the 104 small business plans from our latest 401(k) fee study and how much the annual savings would increase a hypothetical participant’s account balance at retirement age. The following assumptions were used:

Current age	30
Retirement age	65
Current balance	$50,000
Annual contributions	$10,000
Interest rate	7%
Compounding periods	Daily

Provider	Parts⁽¹⁾	Assets⁽¹⁾	Provider All-In⁽²⁾	Retirement Balance	EF All-In⁽²⁾	Retirement Balance	Additional Savings
ADP	23	$583,215	1.56%	$1,386,955	0.49%	$1,834,272	$447,317
Alerus	24	$2,098,716	0.90%	$1,645,743	0.27%	$1,944,483	$298,739
American Funds	14	$444,087	1.74%	$1,322,972	0.54%	$1,809,824	$486,852
American National	11	$1,542,542	1.92%	$1,264,119	0.30%	$1,931,088	$666,969
Ameritas	10	$713,342	1.80%	$1,301,448	0.41%	$1,873,535	$572,088
Ascensus	16	$1,293,503	0.94%	$1,625,761	0.32%	$1,919,511	$293,750
Aspire	17	$869,876	1.31%	$1,478,066	0.38%	$1,887,355	$409,289
AXA	43	$2,508,235	0.97%	$1,615,638	0.28%	$1,938,412	$322,774
CUNA	30	$1,420,521	0.80%	$1,690,111	0.30%	$1,926,768	$236,657
Empower	15	$2,238,643	1.06%	$1,577,536	0.27%	$1,945,649	$368,113
Fidelity	29	$2,741,477	0.93%	$1,633,809	0.26%	$1,947,710	$313,901
Guideline	34	$196,057	1.97%	$1,247,491	0.97%	$1,613,281	$365,790
John Hancock	25	$1,889,738	1.23%	$1,508,677	0.28%	$1,938,351	$429,674
Lincoln	21	$2,841,065	1.09%	$1,567,098	0.25%	$1,954,255	$387,156
LT Trust	14	$834,435	0.42%	$1,868,194	0.35%	$1,903,609	$35,414
MassMutual	21	$684,923	1.86%	$1,281,769	0.44%	$1,860,448	$578,679
Mutual of Omaha	14	$2,668,746	1.20%	$1,521,182	0.26%	$1,952,467	$431,284
Nationwide	12	$564,615	1.97%	$1,247,452	0.46%	$1,846,034	$598,582
OneAmerica	16	$2,068,204	1.06%	$1,579,127	0.27%	$1,943,933	$364,806
PAi	37	$1,345,444	0.37%	$1,895,101	0.31%	$1,925,431	$30,330
Paychex	28	$1,077,421	0.93%	$1,632,239	0.36%	$1,896,367	$264,128
PCS	9	$568,276	1.90%	$1,269,438	0.43%	$1,861,555	$592,117
Principal	15	$822,751	1.49%	$1,411,312	0.38%	$1,887,592	$476,280
Sentinel Benefits	18	$758,973	1.06%	$1,578,688	0.40%	$1,879,876	$301,188
Sentry Life	20	$732,388	1.71%	$1,334,095	0.40%	$1,876,275	$542,180
ShareBuilder	12	$506,111	1.15%	$1,540,934	0.50%	$1,830,982	$290,048
T. Rowe Price	91	$4,950,881	0.60%	$1,782,126	0.27%	$1,946,682	$164,556
Transamerica	52	$812,311	1.03%	$1,588,908	0.46%	$1,845,916	$257,008
Ubiquity	21	$684,690	0.44%	$1,858,218	0.38%	$1,889,578	$31,360
Vanguard	12	$146,033	2.71%	$1,037,669	1.21%	$1,517,291	$479,623
Voya	17	$2,096,929	1.42%	$1,437,176	0.27%	$1,944,451	$507,275
Average	22	$1,207,267	1.18%	$1,529,926	0.33%	$1,912,307	$382,380

⁽¹⁾Average of plans.

⁽²⁾Weighted average of plans based on assets.

The Lesson – Shopping Can Make Retirement More Affordable!

It can be tempting to buy a 401(k) plan from a provider you see on TV or giving into a salesperson sent by your company’s payroll provider. After all, shopping for a 401(k) plan is not going to make anybody’s list of fun things to do – most business owners just want the chore off their plate.

However, choosing the “path of least resistance” can often lead to an overpriced 401(k) plan. As our latest 401(k) fees study shows, the fees for small business 401(k) plans can vary dramatically. Taking the time to find a low-priced provider can make retirement much more affordable for plan participants down the line. Employers should settle for no less.