For HR and Finance leaders at mid-sized companies, understanding 401(k) fee disclosures is more than a compliance checkbox, it’s a core part of fiduciary responsibility and financial stewardship. Even modest annual fees can have a dramatic effect on employee retirement outcomes.

A 2023 analysis by Employee Fiduciary found that just a 0.25% annual fee can reduce retirement savings by over $300,000 over 40 years for a participant contributing $20,000 annually at a 7% return (Employee Fiduciary, 2023). This sharpens the focus on why employers must understand and communicate the true cost of plan fees.

That’s why at Basic Capital, we believe fee transparency is fundamental to building trust and helping employers safeguard plan participants’ futures.

What’s in Scope: Understanding 401(k) Fee Disclosures

401(k) fee disclosures inform both employers and employees about the costs associated with operating and investing in a retirement plan. These disclosures encompass administrative, investment, and individual service fees, all of which can affect participant balances over time.

Clear, accessible disclosures are now a regulatory expectation, not just a best practice. The DOL also provides model comparative charts to help participants better understand fee structures.

Recent Department of Labor guidance highlights the need for plain language and user-friendly formats in all communications about plan fees. For more on the legal details, see our guide to detailed disclosure requirements.

The Regulatory Framework: ERISA, DOL, and Recent Changes

The legal landscape for 401(k) fee disclosures is shaped by the Employee Retirement Income Security Act (ERISA) and Department of Labor (DOL) regulations, including 408(b)(2) and 404(a)(5). These rules define the responsibilities of plan fiduciaries and require clear, regular disclosure of all plan-related fees and potential conflicts of interest.

In April 2024, the DOL finalized the Retirement Security Rule, which expands the definition of “fiduciary” under ERISA and introduces tighter oversight on conflicts of interest. The rule was scheduled to take effect on September 23, 2024, but implementation has been stayed by federal courts while litigation proceeds (Department of Labor, 2024; E.D. Tex., 2024).

Recent amendments have also increased penalties for non-compliance, further emphasizing the need for strict adherence to disclosure regulations.

For more on regulatory developments, read our deep-dive on 408(b)(2) disclosures.

Types of 401(k) Fees and What Must Be Disclosed

It’s common for employers to ask: “What exactly needs to be disclosed about 401(k) plan fees?” The answer covers three main categories:

• Administrative Fees: Costs for plan management, recordkeeping, legal, and accounting services.

• Investment Fees: Expenses tied to the plan’s investment options (e.g., fund expense ratios).

• Individual Service Fees: Charges for participant-specific actions, such as loans or distributions.

While precise comparative data is limited, it’s widely recognized that smaller plans typically pay higher per-participant administrative fees, while larger plans can negotiate lower rates due to economies of scale. Employers should benchmark their own plan’s costs and consider options to control fees, such as joining multiple employer plans or negotiating with service providers.

Employers should also be diligent about disclosing indirect compensation, such as revenue sharing, to avoid incomplete disclosures.

For deeper insights on fee structures, see our breakdown of 401(k) plan fees.

How to Review and Operationalize Fee Disclosures

A strong fee governance process helps employers meet their fiduciary obligations and avoid costly errors. Here’s how to put fee disclosure review into action:

1. Assign Responsibilities: Identify team members or committees responsible for fee review.

2. Maintain a Calendar: Schedule regular (at least annual) reviews of all plan fees and related disclosures.

3. Use Checklists: Develop a checklist of required disclosures, deadlines, and documentation needs.

4. Engage Providers: Request clarity and line-item breakdowns from service providers when disclosure details are unclear.

5. Document Everything: Keep a record of all reviews, decisions, and communications for audit and compliance purposes.

Regular fee audits have been shown to help employers negotiate lower costs and improve compliance.

Leveraging modern digital platforms can streamline fee disclosure review and improve accessibility for all stakeholders.

To see how this process fits into broader plan management, check out our guide to annual review processes.

Common Pitfalls and How to Avoid Them

Too often, employers underestimate the risks of incomplete or unclear fee disclosures. The consequences can be significant, including regulatory scrutiny and legal action.

Neglecting to update participants about changes in fees or investment options can also put employers at risk of fiduciary breaches.

Key takeaway: Recent years have seen an uptick in DOL enforcement, with the Employee Benefits Security Administration recovering over $3.1 billion in 2020 through enforcement actions, many tied to fee disclosure and fiduciary breaches (Department of Labor, 2020).

Staying proactive with compliance reviews and documentation can help employers avoid these pitfalls.

For more on preventing costly mistakes, read about compliance pitfalls and true costs.

Best Practices for Fee Disclosure and Participant Communication

Employers can take several steps to make fee disclosures both thorough and easy to understand:

• Benchmark Fees: Regularly compare your plan’s fees against industry standards, especially as fee compression trends continue across the sector.

• Educate Participants: Provide plain-English explanations and resources to help employees understand how fees impact their savings.

• Leverage Technology: Use digital dashboards or portals to present fee information in an accessible way.

• Conduct Regular Audits: Frequent reviews help keep costs in check and demonstrate fiduciary diligence.

As the DOL continues to emphasize transparency and clarity, these practices help employers build trust and reduce compliance risk.

Learn how to strengthen participant communication in our guide on getting the balance right with participant fees.

Resources and Next Steps for Employers

Employers looking to enhance their 401(k) fee disclosures should utilize available templates, checklists, and comparison tools.

Joining industry groups or accessing government resources can also help employers stay informed on regulatory changes and best practices.

For more resources, see our 401(k) Provider Comparison Worksheet for Mid-Market Teams.

Ready to build a more transparent, compliant retirement plan? Get started (for employers).

Compliance Disclaimer

This content is for informational purposes only and is not legal, tax, investment, or compliance advice.

References

Employee Fiduciary. (2023). DOL 401(k) Fee Disclosure Feedback. https://www.employeefiduciary.com/blog/dol-401k-fee-disclosure-feedback

Department of Labor. (2024). Fact Sheet: Retirement Security Rule and Amendments to Class Prohibited Transaction Exemptions for Investment Advice Fiduciaries. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/retirement-security-rule-and-amendments-to-class-pte-for-investment-advice-fiduciaries

Eastern District of Texas. (2024). Federation of Americans for Consumer Choice, Inc. v. U.S. Department of Labor, Memorandum Opinion and Order (July 25, 2024). https://law.justia.com/cases/federal/district-courts/texas/txedce/6%3A2024cv00163/229816/32/

Department of Labor. (2020). U.S. Department of Labor Restores Over $3.1 Billion to Employee Benefit Plans, Participants and Beneficiaries, the Most Ever. https://www.dol.gov/index.php/newsroom/releases/ebsa/ebsa20201027

Investment Company Institute. (n.d.). FAQs: 401(k) Plan Participant Disclosure. https://www.ici.org/faqs/faqs_401k_partipant_disc

Department of Labor. (n.d.). 401(k) Plan Fees Disclosure. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-fees-qa