Why 401k plan fees benchmarking is now a fiduciary stress test
ERISA does not demand the lowest fee; it demands a reasonable one. Courts now treat 401k plan fees benchmarking as a basic fiduciary hygiene test, and plans that skip it look careless when plaintiffs’ lawyers arrive. For a benefits manager, the question is simple yet brutal: can you explain every dollar of fees charged to your retirement plan in front of a judge.
Reasonable under ERISA case law means a plan sponsor can show a prudent process, not that every plan investment or service is the cheapest on the market. In cases such as Tibble v. Edison International, 575 U.S. 523 (2015), Divane v. Northwestern University, 953 F.3d 980 (7th Cir. 2020), vacated and remanded sub nom. Hughes v. Northwestern University, 142 S. Ct. 737 (2022), and Sulyma v. Intel Corporation Investment Policy Committee, 140 S. Ct. 768 (2020), judges focused on whether plan sponsors understood the fee and expense structure, compared it against peer plans and documented why specific services and investment options were worth the costs. If you cannot point to a recent benchmarking review, your plan’s fee structure and narrative will be written for you in a complaint.
Current benchmark ranges for all-in plan fees are tighter than many plan sponsors still assume. Jumbo plans with more than $1 billion in assets often clear the market at roughly 0.15 to 0.35 percent of assets, while large plans tend to sit between 0.30 and 0.55 percent and mid-sized plans between 0.50 and 0.85 percent, depending on services and investments. If your retirement plan sits outside those averages and you have not run a disciplined fee benchmarking exercise in several years, you are carrying unnecessary litigation risk and leaving retirement income on the table for participants.
What “reasonable” fees mean under ERISA case law
Courts rarely second-guess a fiduciary who can show a structured 401k plan fees benchmarking process. They do, however, punish plan sponsors who cannot explain why plan participants were paying higher fees and expenses than comparable plans for the same services. The legal standard is process-focused: did you review the fees charged, compare them to market averages and act when the gap was unjustified.
Recent ERISA fee cases have turned on three recurring failures: opaque revenue sharing, stale recordkeeping contracts and expensive mutual funds that stayed in the plan long after cheaper share classes were available. In several suits, plaintiffs highlighted that service providers were paid through asset-based fees that grew automatically as plan assets grew, even though the underlying service did not scale in complexity. When courts see a fee structure where expenses rise mechanically while services provided stay flat, they infer a lack of fiduciary oversight.
Reasonableness also depends on the mix of investment management, recordkeeping and advisory services you actually buy. A plan with complex investment architecture, managed accounts and custom target date funds will logically pay more than a bare-bones index lineup, but the extra costs must be tied to measurable value for participants. If you are already wrestling with other cost containment issues such as GLP-1 coverage on your health plan, you know that regulators expect a similar discipline: document the trade-offs, benchmark against peers and adjust when the financial impact drifts.
For fiduciaries who also oversee health savings accounts, the same governance mindset applies and you can learn from resources that explain what happens to an HSA after death, because they show how to communicate complex financial rules clearly to participants. When you translate that clarity into your retirement communications, participants better understand why certain fees are paid and how those costs support long-term retirement income outcomes. Transparent explanations reduce noise, but only if the underlying fee structure already passes a rigorous benchmarking review.
The three core fee components; investment, recordkeeping and advisory
Every serious 401k plan fees benchmarking exercise starts by separating the three main cost buckets. First comes investment management, where mutual funds, collective trusts and separate accounts charge a fee that is usually expressed as an expense ratio on assets. Second is recordkeeping and administration, the operational service that keeps participant accounts accurate, processes contributions and handles compliance testing.
Third is advisory and consulting, where service providers such as registered investment advisers, consultants or broker-dealers are paid to design the investment menu, support plan sponsors with governance and sometimes deliver participant advice. Each of these services can be paid as a percentage of assets, a per-head fee or a hybrid, and the structure matters as much as the level. Asset-based fees seem painless early on, but as assets grow they can push total plan fees well above market averages unless you renegotiate.
When you benchmark, you should calculate the all-in costs that participants actually bear, not just the headline fee for one fund or one service. That means adding the investment management expense ratios, any revenue sharing, the recordkeeping fee, advisory retainers and any à la carte charges for services such as managed accounts or financial wellness tools. If you are also evaluating non-retirement employee benefits like surrogacy loans or other family-building support, you already know that a clear inventory of every service and its price is the only way to judge value.
Plans that fail in litigation often had reasonable investment options on paper but hid high fees and expenses in opaque share classes or bundled recordkeeping arrangements. A disciplined fee benchmarking review will surface whether your investment structure relies on expensive funds to subsidize other services, and whether a cleaner paid plan design with explicit per-participant pricing would lower long-term costs. The goal is not to strip every service, but to ensure each dollar paid by plan participants buys something they actually use.
How to benchmark 401(k) plan fees using credible market data
Good 401k plan fees benchmarking is not a back-of-the-envelope comparison against one friendly peer. It is a structured review that uses multiple data sources, including the 401k Averages Book, large consultant surveys from firms like NEPC and Callan and recordkeeper reports from providers such as Vanguard. These sources give you ranges for plan fees by asset size, participant count and services, which you can then map to your own plan.
Start by building a simple table that lists your current fees charged for investment management, recordkeeping and advisory services, both in dollars and in basis points. Then, pull benchmark data for similar plans, paying attention to whether those plans use active or passive investments, how many investment options they offer and whether they bundle or unbundle services. The 401k Averages Book, for example, can show you how your all-in costs compare to averages for plans with similar numbers of participants and similar contribution flows.
Once you have the comparison, focus on outliers rather than chasing every last basis point. If your recordkeeping fee is materially above the averages for your asset band and participant count, ask whether the extra service you receive justifies the gap or whether you are simply paying for legacy contracts. If your mutual funds sit in higher-cost share classes than peers, quantify the impact on retirement income projections for participants and use that data to push for cheaper funds or a different investment lineup.
Fee benchmarking is not a one-time project; it is a recurring governance discipline that should be documented in committee minutes and tied to your overall financial strategy for employee benefits. When you can show that your benchmarking process relies on independent data, clear comparisons and explicit decisions about costs and value, you are far better positioned if a plaintiff’s lawyer questions your fees and expenses. You also send a strong signal to participants that the plan sponsors treat their retirement savings with the same rigor they apply to corporate capital allocation.
Recent fee litigation; what tripped plan sponsors and how to avoid it
ERISA fee litigation has become a specialized industry, with over one hundred class actions pending and a steady stream of new complaints targeting both jumbo and mid-sized plans. Plaintiffs’ firms now mine Form 5500 filings and 408(b)(2) disclosures to identify plans whose fees charged appear high relative to public averages, then allege that plan sponsors failed to run proper 401k plan fees benchmarking. The pattern is predictable, which means it is also avoidable.
Common allegations include the use of retail share class mutual funds when cheaper institutional share classes were available, failure to monitor revenue sharing and a refusal to move away from bundled recordkeeping arrangements that kept expense levels elevated. In several headline cases, courts criticized fiduciaries for leaving expensive funds in the investment menu for years after lower-cost alternatives emerged, without any documented analysis of the impact on retirement income. Judges have also noted when service providers were paid asset-based fees that rose as assets grew, even though the services provided did not expand in scope.
Another recurring theme is the absence of competitive bidding or formal fee benchmarking over long periods. When a plan has not run a recordkeeping or advisory request for proposal in seven to ten years, plaintiffs argue that the fiduciaries could not possibly know whether their plan fees remained reasonable. Courts do not require constant RFP churn, but they do expect a cadence that reflects market dynamics and the financial stakes for participants.
To stay off the litigation radar, benefits leaders should treat every renewal conversation with service providers as a mini benchmarking exercise. Ask for detailed breakdowns of costs, compare them to external averages and push for pricing structures that align fees with actual service usage rather than passive asset growth. When you can show that each paid plan element has been tested against the market and adjusted where necessary, you turn a potential liability into a story of prudent governance.
RFP cadence, governance routines and communicating value to participants
Benchmarking without action is just an academic exercise, so governance routines matter as much as the data. A practical rhythm for most large retirement plans is a full market check on recordkeeping and advisory services every five to seven years, with lighter-touch fee benchmarking in the interim. For jumbo plans under intense basis point pressure, a shorter cycle may be warranted, especially when assets or participant counts grow rapidly.
Between formal RFPs, committees should review 408(b)(2) disclosures annually, track any changes in fees and expenses and compare them to known averages from sources like the 401k Averages Book or consultant surveys. When assets cross meaningful thresholds, use that as a trigger to renegotiate asset-based fees or shift to per-participant pricing that better reflects the services provided. The aim is to prevent a fee structure where costs drift upward unnoticed while investments and services stay static.
Communication with plan participants is the final, often neglected, leg of the stool. When you adjust investment options, swap out high-cost funds or change service providers, explain how these moves affect the fees they pay and the retirement income they can expect. Participants do not need every technical detail of investment management, but they deserve a clear narrative that links the financial health of their retirement plan to the governance discipline you apply.
For benefits managers juggling multiple employee benefits programs, from health coverage to family-building support, the same principles apply: benchmark, document and communicate. A well-run retirement plan with transparent plan fees and disciplined fee benchmarking is not just a compliance checkbox, it is a visible signal of how your organization treats long-term promises to its people. That signal can be a quiet but powerful retention lever, not another merit matrix, but an actual retention lever.
Key figures on 401(k) plan fees and benchmarking
- Industry surveys of defined contribution plans report that average all-in 401(k) plan fees for large plans have fallen into a range of roughly 0.30 to 0.55 percent of assets, reflecting competitive pressure on both investment management and recordkeeping costs over the past decade.
- Benchmark data for jumbo retirement plans with more than $1 billion in assets shows typical total costs between 0.15 and 0.35 percent, which means that a 0.20 percentage point gap can translate into millions of dollars in additional expenses over a few years for plan participants.
- Mid-sized plans often pay between 0.50 and 0.85 percent in combined fees, and studies from firms such as NEPC and Callan indicate that plans which run a formal fee benchmarking or RFP process at least once every five to seven years tend to sit at the lower end of that range.
- Analyses of ERISA fee litigation filings show more than one hundred active class actions challenging 401(k) fees, with many complaints focusing on the use of higher-cost mutual funds and the absence of recent benchmarking reviews or competitive bids for service providers.
- Data from the 401k Averages Book and large recordkeepers indicates that moving from retail share class mutual funds to institutional share classes or collective investment trusts can reduce investment management expenses by 0.10 to 0.30 percentage points, materially improving projected retirement income for long-tenured participants. For example, a 30-year participant with a $50,000 starting balance and $5,000 in annual contributions earning 6 percent before fees would accumulate about $395,000 at a 0.70 percent all-in fee, but roughly $420,000 at a 0.40 percent fee—a difference of around $25,000 driven purely by lower costs.
FAQ on 401(k) plan fees benchmarking
How often should we benchmark our 401(k) plan fees
Most benefits leaders benchmark 401(k) plan fees formally every three to five years and run a full RFP for recordkeeping and advisory services roughly every five to seven years. Larger or faster-growing plans may tighten that cadence, especially when assets or participant counts change significantly. Between formal events, committees should still review 408(b)(2) disclosures annually and compare key costs to current market averages.
What counts as a reasonable fee under ERISA
Under ERISA, a fee is reasonable when it reflects the value of the services provided and results from a prudent, well-documented process, not when it is simply the lowest number available. Courts look for evidence that plan sponsors understood the structure of their plan fees, compared them to peer plans and acted when gaps were unjustified. If you can show regular 401k plan fees benchmarking, competitive bids and thoughtful decisions about investment options and services, you are on solid ground.
Which data sources are most useful for fee benchmarking
Benefits managers typically rely on a mix of independent publications and consultant surveys for benchmarking. The 401k Averages Book provides detailed cost ranges by plan size, while firms like NEPC, Callan and large recordkeepers publish periodic fee studies that break down investment management, recordkeeping and advisory expenses. Using several sources helps you avoid anchoring on a single dataset and gives your committee a more defensible view of market averages.
How do we explain fee changes to plan participants
When you change providers or adjust the investment lineup, focus communications on what participants pay now, what they will pay after the change and how that affects their projected retirement income. Use simple examples that show how a reduction of a few basis points in mutual fund expenses can compound over decades. Clear explanations build trust and make it easier to adjust services in the future without triggering confusion or suspicion.
Do higher fees ever make sense in a 401(k) plan
Higher fees can be justified when they buy services or investment options that materially improve outcomes for participants, such as high-quality advice, robust financial education or specialized investment management for complex workforces. The key is to document why the extra costs are necessary and to test them regularly against lower-cost alternatives through fee benchmarking. If you cannot articulate the value of a higher fee in terms of participant benefit, it probably does not belong in the plan.