When HR and Finance leaders at mid-sized companies review their 401(k) offerings, one of the most important, and often misunderstood, topics is how plan fees are allocated between employers and participants. Fee allocation shapes not only company costs and administration but also impacts employee trust and retirement readiness. As regulatory scrutiny increases and more companies seek efficient, modern 401(k) solutions, the best practices around 401(k) plan fees, participant fees, and employer fees are shifting in real time. Basic Capital is committed to helping employers understand these shifts and design plans that balance affordability, participation, and fairness.

Models for Sharing Costs: Employer vs Participant Fees

Cost-sharing in 401(k) plans typically falls into three broad models: employer-paid, participant-paid, and shared. While precise industry statistics for mid-sized employers are not widely published, all three models are present across the marketplace. Some employers cover all administrative and investment fees, others pass costs directly to participants, and many split costs between the two groups.

Mid-sized and larger employers often benefit from economies of scale, with per-participant costs significantly lower than those of small employers. A 2024 report by the U.S. Government Accountability Office noted that fee disclosures have increased employers' awareness and ability to manage their plans, suggesting a trend toward more transparent cost-sharing arrangements (U.S. Government Accountability Office, 2024).

It's crucial to assess which cost-sharing model aligns best with your organization's goals and workforce. Employers must also monitor for hidden fees, such as those generated through revenue sharing, which can obscure true costs and increase fiduciary risk.

For a deeper exploration of cost-sharing models and a breakdown of the true costs for employers and employees, visit the 401(k) Provider Pricing: True Costs for Employers vs Employees guide.

Participation and Comprehension: Why Fee Transparency Matters

Too often, employees are unaware of the fees deducted from their retirement accounts, nearly 40% of 401(k) participants do not fully understand the fee information they receive (U.S. Government Accountability Office, 2021), a gap that erodes trust and participation. According to a 2024 GAO report, fee disclosures have increased participants’ knowledge and involvement in their 401(k) plans, with stakeholders noting these disclosures may encourage greater confidence and participation (U.S. Government Accountability Office, 2024).

Earlier research found that among those who read fee disclosure information carefully, 40% made changes to their investments as a result (NAPA-Net, 2013).

Regulators increasingly view transparent fee disclosure as essential for participants to make informed investment decisions.

Transparent fee disclosure is linked to greater employee trust and participation.

Employers benefit from using clear, accessible language and multiple communication channels to help all employees understand their plan’s fee disclosure regulations and participant fees.

For further guidance, see our resource on participant disclosures.

Designing a Fair and Compliant Fee Policy

Building a balanced fee policy starts with benchmarking your plan’s fees, reviewing provider disclosures, and documenting your approach in a written policy. The Department of Labor underscores that plan fiduciaries have a responsibility to make sure that fees paid to service providers are reasonable in relation to the services provided (U.S. Department of Labor, 2024).

Failing to benchmark fees against industry standards can result in excessive participant charges, reducing retirement outcomes and exposing plan sponsors to compliance risks.

This means employers should regularly review their fee structures, compare them to industry standards, and transparently allocate costs between employers and participants.

Here’s how to design a compliant fee policy:

1. Benchmark Your Fees: Compare your administrative and investment fees to similar plans to keep them competitive.

2. Review Provider Disclosures: Analyze all 408(b)(2) and 404(a)(5) disclosures for transparency and accuracy.

3. Document Your Policy: Create a written Fee Policy Statement outlining how fees are allocated and monitored, including your approach to any revenue-sharing arrangements.

4. Monitor Regularly: Schedule ongoing reviews to assess the need for adjustments and compliance with regulations.

5. Communicate Clearly: Make sure all stakeholders understand the fee allocation and any changes made.

For a breakdown of how costs scale as your business grows and the importance of regular benchmarking, see 401(k) Plan Fees Explained: How Costs Scale as Your Business Grows.

Communicating Fee Policies to Employees

What’s the best way to help employees truly understand 401(k) fees? Employers are encouraged to use a variety of communication channels, such as workshops, digital portals, and print materials, to enhance employee understanding and engagement with their retirement plans.

Clear, plain-English explanations of fee structures are vital for participant understanding.

Although specific statistics on the impact of multi-channel communication are limited, HR best practices show that diverse communication methods can improve comprehension and participation. Encouraging questions or feedback in these communications can further improve employee understanding.

Employers should use multiple channels to help all employees understand fee policies.

By making participant education a core part of your 401(k) communications and leveraging clear, accessible disclosures, you help employees make informed decisions.

For more on fee communication and participant engagement, visit our guide on participant education and disclosures.

Review Cadence and Triggers for Fee Policy Updates

Fee policies should not be static. Regular reviews, triggered by events like headcount growth, plan design changes, or shifts in service providers, are essential for maintaining compliance and trust.

The GAO’s 2024 findings indicate that increased fee disclosure has enhanced employers’ ability to manage plans more effectively, particularly among smaller and mid-sized employers (U.S. Government Accountability Office, 2024).

Regular fee audits and governance reviews help maintain plan compliance and participant trust.

This approach aligns with best practices for fiduciary governance and proactive plan management.

Assign clear ownership for fee policy reviews, keep thorough documentation, and schedule these reviews at least annually.

For more on fee governance and continuous improvement, see our resource on governance clarity.

Conclusion: Balancing Affordability, Participation, and Fairness

Getting the balance right between affordability, participation, and fairness in cost-sharing models requires transparent communication, diligent oversight, and ongoing education.

By prioritizing clarity in employer fees and participant fees, and reviewing your processes regularly, you build lasting confidence among your employees and reduce compliance risk.

Prioritizing fee transparency not only encourages participation but also mitigates legal and reputational risk for employers.

Ready to build a more transparent 401(k) plan? Get started with a transparent 401(k) plan.

References

U.S. Department of Labor. (n.d.). A Look At 401(k) Plan Fees. https://www.dol.gov/node/63354

Employee Fiduciary. (2021). Finding Hidden 401(k) Fees in Participant Disclosure Notices. https://www.employeefiduciary.com/blog/finding-hidden-401k-fees-in-participant-disclosure-notices

GAO. (2024). Private Pensions: DOL Should Strengthen Its Oversight of 401(k) Plan Fee Disclosures. https://www.gao.gov/products/gao-24-107125

News Bloomberg Law. (2021). Make Retirement Plan Fee Disclosures Clearer, Watchdog Tells DOL. https://news.bloomberglaw.com/daily-labor-report/make-retirement-plan-fee-disclosures-clearer-watchdog-tells-dol

GAO. (2012). Survey of 401(k) Plan Sponsors on Fees (GAO-12-550SP). https://files.gao.gov/special.pubs/gao-12-550sp/results.htm

GAO. (2011). 401(k) Plans: Improved Regulation Could Better Protect Participants from Conflicts of Interest (GAO-11-119). https://www.gao.gov/assets/a315369.html

GAO. (2021). 401(k) Retirement Plans: Many Participants Do Not Understand Fee Information (GAO-21-357). https://www.gao.gov/products/gao-21-357

U.S. Department of Labor. (n.d.). Meeting Your Fiduciary Responsibilities. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities

Investment Company Institute. (2025). US Equity Fund Fees Continue to Decline Amid Rising Investor Demand for Lower-Cost Options. https://www.ici.org/news-release/25-news-fund-fees-decline