When it comes to employer-sponsored retirement plans, fee transparency is more than just a compliance box, it's essential for building trust and helping employees make smart financial decisions. A recent U.S. Government Accountability Office report found that about 40% of 401(k) participants do not fully understand the fee information provided, and 41% mistakenly believe they don't pay any 401(k) plan fees at all (GAO, 2021).

This gap in understanding makes it vital for employers to communicate clearly about the total cost of retirement plans and empower employees with the knowledge to make informed choices. For more guidance on plan governance and compliance, visit our 401(k) resources hub.

The Short Answer: What Employers Should Communicate

Employers should communicate the full scope of retirement plan fees, administrative, investment, and service-related, using clear, accessible language. Being transparent about fee disclosure requirements is not just a regulatory obligation but also a best practice that fosters trust and engagement.

Proactively clarifying fees also helps employers avoid legal pitfalls and increases employee satisfaction with the retirement program.

Fee transparency is an ongoing responsibility, not a one-time disclosure.

By addressing questions and providing resources, employers help employees feel confident in their retirement plan choices. For more detailed employer guidance, see our 401(k) resources on disclosure best practices.

What Employees Pay in a Typical 401(k)

Understanding 401(k) fees is essential for both employers and employees. The most common fees include administrative charges for plan management, investment fees (often as fund expense ratios), and individual service fees for specific actions like loans or distributions. For mid-sized employer plans, those with $1 million to $10 million in assets, the average total plan cost is about 1.01% of plan assets (Pew Charitable Trusts, 2024).

Larger plans often negotiate lower fees due to greater assets, while smaller plans may see higher average costs.

Even so, fee awareness remains low: about 41% of participants mistakenly believe they do not pay any plan fees at all (GAO, 2021).

For more on disclosure obligations, see What Employers Need to Know About 408(b)(2) Disclosures.

What Employees May Encounter Elsewhere (IRA Fees and Other Plans)

When comparing IRA fees and 401(k) fees, differences in cost structures can be significant. IRAs often offer a wider range of investment options, sometimes with lower expense ratios, but may also come with advisory fees or transaction costs. Notably, when employees roll over 401(k) assets into IRAs, they sometimes face higher investment fees, one study found that a 1% fee difference can reduce retirement savings by up to 17% over 20 years (CNBC, 2021).

Rolling over a 401(k) to an IRA without comparing fee structures can erode years of retirement savings growth for employees.

While 401(k) administrative fees may be partially or fully covered by employers, IRA fees are typically borne entirely by the individual.

For deeper insight on the impact of fees, see our resource on retirement plan fee impact.

How to Explain “Total Cost” Simply (3 Examples, Non-Numeric)

It’s easy for employees to overlook the total cost of retirement plans if fees and cost breakdowns are not clearly communicated. Here are three ways to explain “total cost” without overwhelming employees with numbers:

• Describe the different types of fees: administrative (for managing the plan), investment (for managing funds), and individual service fees (for actions like loans or withdrawals).

• Use relatable analogies: Explain that just as small recurring charges can add up in a household budget, small differences in retirement plan fees can add up over decades.

• Emphasize the compounding effect: For instance, a 1% higher fee can reduce a participant’s savings by about 17% over 20 years (CNBC, 2021).

Encouraging employees to review their annual disclosure statements helps maintain ongoing awareness of any fee changes.

For more on what goes into total plan cost, visit our 401(k) resources.

Employer Levers That Reduce Confusion (Governance + Education)

Employers have several tools to reduce confusion and promote understanding around employee retirement plan education and retirement plan fiduciary responsibilities. This includes:

• Providing regular, plain-language updates about plan fees and features.

• Offering educational sessions or workshops tailored to varying employee knowledge levels.

• Conducting periodic reviews of plan fees to confirm they remain competitive and reasonable.

Industry leaders recommend benchmarking plan fees at least every three years and renegotiating service agreements to stay competitive.

Research shows that targeted, personalized communication efforts, such as one-on-one meetings, can increase employee contribution rates and engagement (Milliman, 2023).

For further insights on employer responsibilities, explore our 401(k) resources.

FAQ: “Who Pays What?” (Employer vs Participant Framing)

Who pays for 401(k) administrative fees and investment costs? The answer depends on the plan’s structure. Some employers cover all administrative fees, while others pass some or all of these costs on to participants. Investment fees, such as fund expense ratios, are almost always paid by participants.

ERISA regulations require plan fiduciaries to confirm that all fees are reasonable, regardless of how they are allocated.

Understanding this split helps employees accurately assess the value of their plan and employers to clearly communicate cost responsibilities.

For a detailed breakdown, see 401(k) provider pricing: true costs for employers vs employees.

Employee Talking Points (Copy Block)

When discussing retirement plan fees with employees, HR and Finance leaders can use these ready-made talking points:

“All retirement plans come with some fees, but we’re committed to making sure you understand exactly what you’re paying and why. Most fees cover administration, investment management, or specific services you might use. Our goal is to keep fees reasonable and transparent, so you can make the best decisions for your future.”

GAO has found that 41% of participants incorrectly believe they do not pay any 401(k) plan fees (GAO, 2021), so reinforcing this message is key to building awareness.

Remember, higher fees don’t always mean better returns—our oversight is designed to keep costs fair and transparent.

For more communication resources, see our employee communication templates for provider changes.

Next Steps for Employers (CTA)

Clear, ongoing communication about cost-effective retirement planning helps employees maximize their retirement outcomes and strengthens your role as a plan sponsor. To learn more about improving fee transparency and plan governance, get started with Basic Capital.

Consider benchmarking your current plan fees as a first step to improved transparency.

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

References

Government Accountability Office. (2021). 401(k) Retirement Plans: Many Participants Do Not Understand Fee Information, but DOL Could Take Additional Steps to Help Them. https://www.gao.gov/products/gao-21-357

Pew Charitable Trusts. (2024). Small Employers and the Economics of Offering Retirement Savings Plans. https://www.pew.org/en/research-and-analysis/issue-briefs/2024/07/small-employers-economics-of-offering-retirement-savings-plans

CNBC. (2021). 40% of Americans don’t understand 401(k) fees, federal watchdog finds. https://www.cnbc.com/2021/08/26/40percent-of-americans-dont-understand-401k-fees-federal-watchdog-finds.html

Milliman. (2023). Case Study: The Effectiveness of Communication and Education Strategies on 401(k) Plans. https://www.milliman.com/en/insight/case-study-the-effectiveness-of-communication-and-education-strategies-on-401k-plans