Every 401(k)'s cost decomposes into four layers: recordkeeping, administration/TPA, the funds' own expense ratios, and advice or fiduciary services. Small plans commonly pay a base-plus-per-head fee for the first two, asset-based fees for the last two — typical market ranges are in the table below, but they're wide; the only real number is a written quote on your census, so get two. SECURE 2.0 credits can offset much of a new plan's early cost for employers of 50 or fewer.
The four fee layers
Every 401(k) bill, however it's packaged, decomposes into the same four layers. Providers bundle, rename and cross-subsidise them, which is why two proposals can look wildly different and cost the same — or look the same and cost wildly different amounts. Unbundle first, compare second.
| Layer | What it pays for | How it's typically charged | Who usually pays |
|---|---|---|---|
| Recordkeeping | The participant accounts, website, statements, contribution processing | Base fee + per-participant fee, and/or % of assets | Employer, participants, or split |
| Administration / TPA | Plan document, compliance testing, Form 5500, notices | Annual base fee + per-participant; per-event fees for amendments, loans, distributions | Usually employer |
| Investments | The funds themselves (expense ratios), plus any managed-account or model fees | % of assets, deducted inside the funds | Always participants |
| Advice / fiduciary | A 3(21) adviser or 3(38) manager; participant education | Flat fee or % of assets | Employer or plan assets |
Two structural notes. First, asset-based fees grow with the plan even when the work doesn't — a 0.50% recordkeeping charge on a plan that doubles in assets doubles in dollars. Flat and per-head pricing ages better as a plan grows. Second, whoever pays, fees paid from plan assets come out of employees' (and your own) retirement balances, which is exactly why ERISA makes their reasonableness your fiduciary problem.
What small plans typically pay
Ranges below are typical market ranges we see for small California plans — not quotes, not promises. Pricing varies enormously with participant count, average balances and service level; the only number that matters is the one on a written proposal for your census. Get at least two quotes.
| Layer | Typical market range (small plans) | What moves it |
|---|---|---|
| Recordkeeping | Roughly $1,000–$3,000/yr base plus a per-participant charge, or an asset-based fee instead | Participant count; whether pricing is flat or % of assets |
| TPA / administration | Commonly $1,000–$3,000/yr for a basic plan; more with complex designs | Safe harbor vs tested; profit sharing; cash balance pairing |
| Fund expense ratios | From a few hundredths of a percent for index funds to well over 1% for some active menus | The menu itself — the layer most worth scrutinising |
| Advice / fiduciary | Flat annual fee or an asset-based fee; 3(38) service typically prices above 3(21) | Scope of discretion; participant services included |
These are deliberately wide. Treat them as a sanity check on proposals, nothing more — and treat any provider who resists putting their number in writing, in dollars, as having answered a different question.
Where the fees hide
- The 408(b)(2) disclosure. Federal law requires covered service providers to disclose their compensation to you, the hiring fiduciary, before you sign and when it changes (29 C.F.R. § 2550.408b-2). If you've never seen yours, request it — it exists.
- The 404a-5 participant disclosure. The annual fee notice employees receive; the fund table in it shows every expense ratio in one place.
- Revenue sharing. Some funds quietly pay part of their expense ratio back to the recordkeeper (12b-1 fees, sub-TA fees). It isn't illegal, but it means the "free" recordkeeping is being paid by participants through pricier funds. Ask the direct question: "Do you receive any compensation from the funds on the menu?"
- Per-event fees. Loan setup, distributions, QDROs, amendments. Small individually; worth seeing on one page.
Our fee analyzer shows what an extra layer of asset-based cost compounds into over time — the arithmetic that makes this worth an afternoon.
The offsets: startup credits
For new plans, SECURE 2.0 materially changed the net numbers. Employers with 50 or fewer employees can claim a credit for up to 100% of qualified startup costs (50% for 51–100 employees), within annual caps, for the first three years — plus a separate credit tied to employer contributions for smaller employers, phasing down over five years (IRC §§ 45E and 45T; claimed on IRS Form 8881). An auto-enrollment credit adds a further amount per year for three years for plans that include it. The interaction of caps and eligibility has enough moving parts that we keep a dedicated guide: the retirement plan tax credits. The headline: for many sub-50-employee California businesses, the first years of a new plan are largely offset.
Five ways owners actually lower the bill
- Unbundle the quote. Ask every bidder for the four layers separately, in dollars, on your census. Refusal is data.
- Prefer flat and per-head pricing where offered, especially if you expect assets to grow.
- Index the core menu. The investment layer is the largest cost in most small plans and the easiest to cut without losing anything employees value.
- Re-shop every few years. Recordkeeping pricing has fallen for years; plans that never re-bid rarely benefit. This is also evidence of the fee monitoring ERISA expects — see ERISA basics.
- Right-size the design. A safe harbor plan trades a mandatory contribution for zero testing; a PEP trades flexibility for pooled pricing. Design drives cost more than vendor choice does.
Our own pricing for plan work is published at how we are paid; the service itself is described at business retirement plans.
Common questions
Who pays the fees — me or my employees?
It's a plan-design choice, layer by layer. Employers commonly pay the TPA and often recordkeeping; fund expenses always come from participant balances. Whoever pays, you as fiduciary must ensure fees paid from plan assets are reasonable for the services received — and disclose them to participants annually.
Is a "free" 401(k) from my payroll company really free?
No provider works free. Low headline administration fees are typically recovered through asset-based charges or fund menus with revenue sharing — costs that land on participant balances and grow with the plan. Read the 408(b)(2) disclosure and translate everything into dollars before believing any adjective.
What is a reasonable all-in cost?
"Reasonable" under ERISA means reasonable for the services received, judged against the market — there is no official number. The practical test is competitive bidding: if two comparable quotes on your census come in well below what you pay, that gap is the answer. Benchmark every few years and keep the paperwork.
Do the startup credits apply if I'm switching providers, not starting a plan?
The startup credit (IRC § 45E) targets employers establishing their first plan — generally you can't have maintained a plan in the prior three years. Switching vendors on an existing plan doesn't restart eligibility. The rules have edges worth checking with your CPA; our tax-credit guide covers the basics.
Sources
- U.S. Department of Labor, Understanding Retirement Plan Fees and Expenses, dol.gov
- 29 C.F.R. § 2550.408b-2 (service-provider fee disclosure) and § 2550.404a-5 (participant fee disclosure)
- IRC §§ 45E and 45T (startup and auto-enrollment credits); IRS Form 8881 instructions, irs.gov
- U.S. Department of Labor, A Look at 401(k) Plan Fees, dol.gov/agencies/ebsa
Want your plan's real all-in number?
Send us your 408(b)(2) disclosure — or the proposal you're considering. We'll decompose it into the four layers and benchmark it, free.