On The Rise: Pesky Fee Problems

No one wants to see fees tagged on at checkout…or get hit with a new bill just after paying up. This is especially true with 401k plans, since the whole point is to save–and not spend–in the first place. Unfortunately for sponsors and participants at small and mid-sized businesses, the fees just keep on coming, and though it would seem automation should result in relief, that’s not how fees actually seem to be playing out.  

Where’s The Transparency? 

Summarizing a report from Human Interest (which offers 401k plan services), Benefit News confirms that “small and mid-sized businesses are struggling with unexpected retirement plan fees.” The Human Interest report was based on surveys with
“500 U.S.-based benefits decision-makers at small businesses offering a 401(k) or pooled employer plan,” and found that nearly half of the employers (49%) said that complaints were on the rise “because employees are frustrated, confused or surprised by these fees.” Some of the specific fee concerns the Human Interest report surfaced include: 

• Two-thirds of small and midsized employers paid fees they didn’t anticipate when selecting their current retirement plan provider….
• These include charges for third-party services such as auditors and ERISA counsel, value-add services, and routine plan events such as participant searches, compliance updates and IRS filings. 
• Nearly three-fourths of employers reported that additional services and plan event fees drove up the overall cost of their benefits program. 
• As a result, 13% terminated their plan because they couldn’t afford the additional costs, while 26% lowered their matching contribution to save money.
• Workers are feeling the impact too, especially lower-balance participants who tend to be hit hardest by transaction fees…Participants have withdrawn from the plan because they’ve found transaction fees unaffordable, unexpected or confusing. 

Left Behind: Participants at Smaller Plans

Although intense focus on retirement plan fees in recent years has led to some relief for participants, it’s mostly been limited to those fortunate to be in a plan sponsored by a large company. Summing up the dynamic, Plan Sponsor reports that smaller plans face bigger fee problems:

• A study by the Consumer Federation of America found that workers participating in an average-cost plan with less than $1 million in assets for 40 years could retire with approximately $292,000 less than if the same worker participated in an average-cost plan with at least $1 billion in assets. The small-plan worker would need to hold off retirement for an average of four and a half years to catch up because, as fees increase, the gap workers in smaller plans need to cover increases.
• According to a Morningstar analysis, about 15% of small plans face annual 401(k) expenses of greater than 1.4% of plan assets, whereas bigger plans often keep their expenses to less than 1% of their assets.

Good To Know and Do

Keep in mind that SECURE 2.0 legislation incentivized small businesses to offer retirement plans. For example, employers with 1 to 100 employees can claim tax credits to offset plan setup and routine administrative costs for the first three years. Ascensus offers this round up of how to leverage some of the benefits of the massive SECURE 2.0 legislation in real time: Retirement Plan Updates for 2026: What Advisors Need to Know. 

Remember too, that when you sponsor a retirement plan, you are inherently a fiduciary, obligated to look out for the best interests of participants—and clearly not all fees are. That’s why you can’t just grin and bear it when you receive notification of a fee increase. On LinkedIn, business and 401k guru Scott Pooch suggests that it is imperative to stay on top of fees, and try to negotiate them down. It’s also wise to consider who actually pays these fees and how. For example, Pooch points out: 

• In many plans, the company can pay the administrative fees directly, by check, instead of letting them come out of accounts. When you do:

• The check is a deductible business expense.

• Every dollar of fees stays invested, compounding for the owner and key people.

• Fiduciary exposure drops, because the fees aren’t drawn from the plan.

• And you get a recruiting line most employers can’t say: “we offer a strong 401(k), and the company covers fees that would come straight out of your account almost anywhere else.”

Of course plan sponsors must also take the time to actually understand all the fees associated with the plan. The Department of Labor (DOL) publication, A Look At Plan Fees, provides a solid overview, and this summary of 401k fee categories from Human Interest may be insightful too. 

Protect Your Assets Too…

When you sponsor an ERISA retirement plan, you can be held personally liable for errors in your oversight of the plan, including: 

• Decisions: Do you have the right advisor, and investment options? 
• Cost control: Are the plan fees reasonable and services solid?
• Compliance: Do operations adhere to the plan document, and government regulations? 

Even if you have done nothing wrong, ERISA Defense for plan sponsors is an out of pocket expense that adds up quickly, averaging $600 per hour. 

To ensure that even small business owners have affordable protection, Colonial Surety Company offers an efficient Fiduciary+Cyber Liability Package.

Uniquely, this Colonial Surety Company ERISA Bundle combines three essential protections in one seamless package for retirement plan sponsors:

• ERISA Fidelity Bond — Fulfills your federal mandate to protect plan assets from fraud and dishonesty
• Fiduciary Liability Insurance — Provides up to $1,000,000 in coverage for legal defense costs and penalties arising from fiduciary errors, administrative oversights, and participant claims
• Complimentary $50,000 Cyber Liability Insurance — Protects your plan and company against regulatory actions following a data breach, addressing the DOL’s cybersecurity guidance directly by including expert response services.

Colonial Surety Company is Treasury-Listed, rated “A” (Excellent) by AM Best, and has been in business since 1930. As a direct carrier — not a broker — there are no agent markups or unnecessary fees. You can quote, purchase, and download proof of coverage entirely online in minutes.

Don’t wait for a participant complaint, DOL inquiry, or cyber threat to find out what you’re missing. 

Get an instant quote on Colonial Surety Company’s ERISA Bundle today and protect your plan, your business, and your personal assets in one smart move.

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