Most plan sponsors can quote their recordkeeper's stated administration fee. Far fewer can quote what the plan and its participants actually pay once every embedded charge is added up, because the largest costs in a 401(k) plan are often the ones that never appear on an invoice. Surfacing them is the first step toward knowing whether your plan's fees are reasonable, which is a fiduciary obligation, not a preference.
As a fee-only independent advisor with no financial stake in any provider, here is where we most often find cost that plan committees did not know they were carrying.
When plan investments pay 12b-1 fees, sub-transfer-agency fees, or other revenue sharing to the recordkeeper, participants fund plan administration invisibly through fund expense ratios. A plan can look inexpensive on paper while participants pay well above market once revenue sharing is counted, and the burden usually falls unevenly across investment options.
Providers can earn income on balances held briefly during contribution and distribution processing (float), and through other indirect arrangements that rarely surface unless a sponsor asks specifically. These amounts are real compensation to the provider and belong in any honest accounting of what the relationship costs.
Managed account programs commonly add somewhere between 10 and 45 basis points on top of the underlying investments, typically declining as a participant's balance grows and charged to every enrolled participant whether or not they engage with the service. Bundled into the recordkeeping relationship and defaulted on, these fees can quietly become one of the largest costs in the plan.
Asset-based fees rise automatically as the plan grows, even when the provider's workload does not. A pricing structure that was reasonable at $200 million in assets can be well above market at $500 million, without a single contract term changing. Plans that never convert to per-participant pricing, or never re-benchmark asset-based fees, pay for growth they are already generating.
Loan origination and maintenance fees, distribution and QDRO processing fees, and other per-event charges are billed directly to participants and seldom benchmarked. Individually small, they add up across a large participant population and vary widely between providers.
Some pricing is contingent on the plan using the provider's proprietary investment products. The stated administration fee may be low precisely because the provider expects to earn its margin on the investment side, a trade-off the committee should evaluate explicitly, not inherit by default.
None of these charges is necessarily improper. The fiduciary failure is not paying them; it is paying them without knowing. A disciplined approach surfaces the full picture:
Curcio Webb runs independent fee benchmarking, recordkeeper searches, and provider audits for plan sponsors, surfacing direct and indirect compensation and testing it against real negotiated market terms. We sell no products and take no provider compensation.
GET IN TOUCHThis article is provided for general information and does not constitute investment, legal, or fiduciary advice. Fee reasonableness depends on plan-specific facts; consult your plan's advisors before acting.