Small Businesses and 401(k) Plan Fees

A new survey questions whether small businesses are paying too much when it comes to 401(k) plan fees.

Despite the industry’s efforts to make 401(k) plans more transparent, accessible and low cost, a national survey by ShareBuilder 401k found that on average, small-business owners who read fee disclosure statements still consider 3% a reasonable price to pay. Three percent is three times ShareBuilder 401k’s 1% benchmark.

The survey findings also show that 62% of small-business owners think fee disclosures are clearer now than they were in 2012, which was the first year that the Department of Labor mandated retirement plan providers disclose all administrative and investment fees. A majority (70%) of small business owners who review their fee disclosures feel prompted to comparison shop. Twenty-nine percent say they plan to look for a new retirement plan provider.

“While it’s encouraging to see that plan sponsors find the new disclosures easier to understand, and feel compelled to take action, there remains a lack of awareness regarding what is a reasonable price to pay,” says Stuart Robertson, president of ShareBuilder 401k, based in Seattle. “Three percent is at least three times what plan participants should pay for an employer-sponsored retirement plan. It is essential to educate owners and employees on the low-fee options available to all investors.”

Survey findings also indicate that 86% of small business owners are willing to spend more on their plan in return for increased support for the plan and for their employees. This includes access to investment advisers (37%) and employee guidance tools and materials (35%).

“We continue to advocate that no plan charge employees more than 1% in fees and investment expenses. The more knowledgeable owners and employees are about fees and their impact on savings, the closer they’ll be to attaining financial freedom in retirement,” says Robertson. “Over the course of a 30- or 40-year career, the difference between 1% or 2% in fees can translate into to hundreds of thousands of dollars in lost retirement savings.”

Other survey findings include:

  • Small business owners want lower fees. Thirty-five percent of small business owners say they negotiated or plan to negotiate better pricing with their current plan provider, while 34% gathered, or plan to gather, benchmarking data to compare their current plan with alternate plans. Sixty-five percent of small business owners compared the fees in their plan to other comparable plans on the market.
  • Employees are taking a stand. Eighty-two percent of businesses reported that at least some employees took action as a result of their 401(k) fee disclosure notice. The survey also revealed 41% of business owners received requests from their employees for a better understanding of their plan expenses.
  • Employers are taking action on their own. Fewer small business owners (23%) are likely to hire a consultant compared to last year (37%). Rather, companies are negotiating or planning to negotiate better pricing with their current 401(k) provider (35%) and gathering or planning to gather benchmarking data to compare with alternate plans (34%).

For employers who know what their company fee disclosure is, they can use an online plan comparison tool to benchmark their plan.

The ShareBuilder 401k Disclosure Survey was conducted by Wakefield Research among 500 small business owners and decisionmakers offering 401(k) plans at companies with 100 employees or less. The survey was carried out online between November 19 and December 2, 2013.

If you would like to receive the research summary report, please contact Alison Cahill of Capital One at

ShareBuilder 401k, a subsidiary of Capital One Financial Corporation, is a provider of 401(k) retirement plans for small and mid-size businesses serving clients that include the self-employed to those with more than 10,000 employees. More information about ShareBuilder 401k can be found here.