Plan Size, Average Account Balance Are Drivers of Plan Fees

Small 401(k) plans have larger costs than large 401(k) plans, but even plans with the same total assets can have different costs, an analysis from the 401k Averages Book shows.

Yet another reason to encourage 401(k) plan participants to boost their retirement plan savings: average account balance is one of the key drivers of 401(k) plan costs, data from the 401k Averages Book 19th Edition shows.

The average total plan cost for a small retirement plan (100 participants/$5,000,000 assets) declined from 1.25% to 1.24% over the past year, while the average total plan cost for a large retirement plan (1,000 participants/$50,000,000 assets) declined from 0.95% to 0.93%.

“Overall fee disclosure and greater transparency has helped drive down 401(k) fees. But what we continue to find is large plans, with larger average account balances, pay less than smaller plans,” said Joseph Valletta, author of the 401k Averages Book. “People in the industry understand this but I doubt participants of smaller companies are aware of this gap.”

In general, investment fees continue to decline. All scenarios (expect one) saw a year-over-year decrease in total investment costs of between 0.01% and 0.03%. Larger plans experienced greater decreases than smaller plans. Valletta notes these fees are typically paid by participants.

Total 401(k) plan costs, which includes all of the investment, recordkeeping, administration and trustee costs paid by the plan sponsor or participants, declined for most plan sizes. Nineteen of 24 scenarios saw a decrease in total plan costs from last year, while the other five remained unchanged.

In a comparison of the average costs of two $5,000,000 401(k) plans—one with 100 participants and the other with 500 participants—the data showed plans with larger average account balances will pay lower fees as a percentage of total assets. Total plan costs for the 100-participant plan ranged from a low of 0.43% and a high of 1.65%, with a median of 1.28%. The average account balance for this plan is $50,000. Total plan costs for the 500-participant plan—with an average account balance of $10,000—ranged from a low of 0.70% to a high of 2.01%, with a median of 1.55%.

The data also shows the average investment expense for the 100-participant plan is 1.15%, compared to 1.22% for the 500-participant plan. The average total plan costs are 1.23% and 1.51%, respectively.

The plan cost breakdown for the 100-participant plan is 52.04% revenue sharing—the portion of the investment cost received by other service providers to the plan—41.46% investment cost and 6.5% recordkeeping and administration cost. The breakdown for the 500-participant plan is 47.68%, 33.11% and 19.21%, respectively.

Valletta says plan sponsors should take their plan’s average account balance into consideration when benchmarking fees.

The amount of revenue sharing paid by a plan is impacted by its size, according to 401k Averages Book. Average revenue sharing can be as high as 1.19% for the smallest plans and as low as 0.16% for larger plans.

And there is a wide range between high and low-cost providers. The range of cost is greatest within the small plan market. The range of a plan with $1,000,000 in assets and 100 participants ($10,000 average account balance) is 0.72% to 2.81%.

The 401k Averages book may be purchased from