Understanding 408(b)(2) and 404(a)(5) fee disclosures can help plan sponsors evaluate retirement plan costs, benchmark provider fees, and make more informed fiduciary decisions.
Retirement plan fees are one of the most important factors affecting both employer costs and participant outcomes, yet they are often among the least understood parts of a 401(k) plan.
Most employers receive fee disclosures every year, but many struggle to answer basic questions after reviewing them:
What are we actually paying?
What are employees paying?
Which fees are reasonable?
Are any fees hidden?
How do our costs compare to similar plans?
At Basic Capital, we believe fee transparency is a critical component of retirement plan governance. Employers should not need a finance degree to understand how their retirement plan is priced.
This guide explains how to evaluate retirement plan fee disclosures, understand the difference between 408(b)(2) and 404(a)(5) disclosures, and identify the questions every plan sponsor should be asking.
Why Fee Disclosures Matter
Under ERISA, plan sponsors have a fiduciary responsibility to ensure retirement plan fees remain reasonable relative to the services being provided.
That responsibility does not mean employers must always choose the lowest-cost provider.
Instead, employers should understand:
What services they receive
What those services cost
How fees are structured
Whether costs remain competitive over time
Fee disclosures provide the information needed to make those evaluations.
The Two Fee Disclosures Every Plan Sponsor Should Know
Many employers encounter two important fee disclosure documents:
408(b)(2) Disclosure
The 408(b)(2) disclosure is provided to plan fiduciaries and employers.
Its purpose is to explain:
Service provider compensation
Administrative fees
Investment-related fees
Advisory fees
Indirect compensation arrangements
Think of this document as the employer-facing fee disclosure.
It helps plan sponsors understand how providers are compensated and whether fees remain reasonable.
404(a)(5) Disclosure
The 404(a)(5) disclosure is participant-facing.
Its purpose is to help employees understand:
Investment expenses
Plan-level fees
Individual service fees
Investment performance information
Think of this as the employee-facing disclosure.
While employers may not review it as frequently, understanding its contents can provide insight into the participant experience.
Understanding the Three Main Fee Categories
Most retirement plan fees fall into three primary categories.
Understanding these buckets makes fee evaluation significantly easier.
Recordkeeping and Administrative Fees
These fees cover the operational side of running the retirement plan.
Common services include:
Participant account administration
Payroll integration
Compliance support
Reporting
Online account access
Participant communications
Administrative fees may be charged:
As a flat annual fee
Per participant
As a percentage of assets
Through a combination of methods
As businesses grow, these fees often evolve, making periodic reviews important.
Investment Fees
Investment fees are typically embedded within investment funds.
These costs often appear as:
Expense ratios
Fund operating expenses
Investment management fees
Because they are deducted directly from fund assets, participants may not always notice them.
For example:
A fund with a 0.40% expense ratio costs approximately:
$40 annually for every $10,000 invested
$400 annually for every $100,000 invested
Small differences in investment expenses can have meaningful long-term effects on retirement savings.
Advisory and Fiduciary Fees
Some retirement plans include fees for:
Investment consulting
Fiduciary services
Participant education
Plan reviews
Governance support
These fees may be:
Asset-based
Flat fee
Per-participant
Plan sponsors should understand both the cost and the services being provided.
A Sample Fee Breakdown
One of the easiest ways to evaluate a plan is to organize fees into a simple summary.
Example Plan
Fee Type | Annual Cost |
|---|---|
Recordkeeping Fee | 0.20% |
Investment Expenses | 0.35% |
Advisory Fee | 0.25% |
Total All-In Cost | 0.80% |
For a plan with $2 million in assets:
Total annual fees = approximately $16,000
This type of summary often makes fee structures much easier to evaluate than reviewing multiple disclosure documents separately.
How to Calculate Your All-In Plan Cost
Many employers focus on individual fees while overlooking total plan costs.
A simple formula can help:
Recordkeeping Fees + Investment Fees + Advisory Fees = Total All-In Cost
For example:
Recordkeeping: 0.15%
Investment Expenses: 0.40%
Advisory Fees: 0.25%
Total Cost = 0.80%
Understanding total costs provides a more complete picture than evaluating fee categories individually.
Questions Every Plan Sponsor Should Ask
When reviewing fee disclosures, employers should ask:
Are All Fees Clearly Disclosed?
If it is difficult to determine:
Who receives compensation
How fees are calculated
What services are included
additional clarification may be needed.
Transparency is often one of the strongest indicators of a healthy provider relationship.
Have Fees Been Benchmarked Recently?
A fee that was competitive five years ago may not remain competitive today.
Periodic benchmarking helps determine whether pricing remains reasonable.
Are Participants Paying for Services They Don't Use?
Some plans include costs for:
Managed accounts
Advisory services
Specialized tools
that may have limited participant adoption.
Understanding utilization can help employers evaluate value.
Are Asset-Based Fees Growing Faster Than Services?
As plan assets increase, some fee structures become significantly more expensive even if service levels remain unchanged.
Employers should periodically review whether asset growth has altered the economics of the plan.
Common Fee Disclosure Red Flags
While every plan is different, several warning signs often warrant additional review.
Multiple Layers of Fees
Complex pricing structures can make it difficult to determine total costs.
Revenue Sharing Arrangements
Revenue sharing is not inherently problematic, but employers should understand:
How it works
Who receives compensation
Whether lower-cost alternatives exist
Limited Fee Transparency
If providers cannot clearly explain:
Costs
Compensation
Services
plan sponsors may struggle to fulfill fiduciary responsibilities.
Outdated Investment Share Classes
Employers should periodically verify that lower-cost share classes are not available for existing investments.
What Fee Transparency Looks Like Today
Modern retirement plans increasingly emphasize transparency.
Employers often expect:
Clear pricing structures
Easy-to-understand disclosures
Simplified fee reporting
Better cost visibility
More straightforward provider compensation models
At Basic Capital, we believe employers should be able to understand retirement plan costs without needing to decode dozens of pages of disclosures.
Companies looking for a deeper breakdown of retirement plan fee disclosures may also benefit from reading our Practical Guide to 401(k) Fee Disclosures for Employers.
Better Visibility Leads to Better Decisions
Fee disclosures are more than compliance documents.
They are tools that help employers:
Benchmark provider costs
Evaluate plan value
Strengthen fiduciary oversight
Improve participant outcomes
Support better governance decisions
At Basic Capital, we believe transparency supports trust, and trust supports stronger retirement plans.
Companies evaluating retirement plan modernization can also explore our For Employers resources to learn how modern retirement infrastructure supports transparency, compliance, and employee engagement.
The Bottom Line
Evaluating retirement plan fee disclosures does not require becoming a retirement industry expert.
By understanding the purpose of 408(b)(2) and 404(a)(5) disclosures, organizing fees into clear categories, and periodically benchmarking costs, employers can make more informed decisions about their retirement plan.
At Basic Capital, we believe retirement plans should make costs easier to understand, not harder to uncover.
Ready to see how a modern retirement platform approaches pricing and transparency? Get started with Basic Capital to learn how we help employers simplify retirement plan administration, improve visibility, and support better retirement outcomes.
