April 28, 2025 | By Theresa Conti, Industry Consultant
Retirement plan pricing remains a nuanced and often complex topic. But for plan sponsors, understanding how fees work is essential to making informed decisions—and for financial advisors, it’s critical to help them navigate this process. The ultimate goal? To maximize participant outcomes and ensure fees don’t unnecessarily erode retirement savings.
A retirement plan includes several layers of fees: administrative, recordkeeping, investment advisory, investment management, custodial, and potentially legal or audit-related. While required fee disclosures are in place, they’re often lengthy and difficult to interpret. That makes it even more important for advisors to provide clarity and guidance.
Here’s a quick breakdown of the two primary types of required disclosures:
- 408(b)(2): This is the plan-level disclosure provided annually to plan sponsors. It outlines service provider fees and supports the sponsor’s fiduciary responsibility to ensure those fees are reasonable.
- 404(a)(5): This participant-level disclosure details plan-related and investment-related fees that may be charged to individual accounts.
Let’s take a closer look at each fee category:
These fees are usually paid directly by the plan sponsor and cover services like plan document maintenance, compliance testing, and general plan administration. These are typically charged by the TPA or recordkeeper as a base fee plus a per-participant amount.
In many cases, it’s beneficial for the sponsor to pay these fees—especially during the first three years when startup tax credits may apply. Even after that window, absorbing some or all of the costs can support better outcomes for participants by allowing more of their money to remain invested.
There are two common approaches to charging recordkeeping fees:
- Flat fees: These are predictable and transparent—each participant pays the same amount regardless of their account balance.
- Asset-based fees: These vary based on account size. While easy to calculate as a percentage of assets, they tend to cost more over time as the plan grows, and they disproportionately affect participants with higher balances (often key employees or business owners).
Both models have trade-offs. As an advisor, helping sponsors evaluate which model aligns best with their goals and participant demographics is an important value add
Some TPAs and recordkeepers offer 3(16) fiduciary services, where they take on additional administrative and compliance responsibilities on behalf of the plan sponsor. These services can reduce the fiduciary burden on the employer, but they typically come with slightly higher fees. It’s important for plan sponsors to understand what’s included in a 3(16) offering—such as signing the Form 5500 or overseeing participant notices—and weigh whether the added cost provides meaningful value or risk reduction based on their internal resources.
These fees relate to both the cost of the investments themselves (e.g., expense ratios) and the compensation structure for the advisor. Higher investment expenses—especially when compounded over time—can significantly impact retirement outcomes.
As an advisor, it’s important to be transparent about how you’re compensated. Whether your fee is embedded in fund expenses or charged directly (either by the plan or the sponsor), clarity and fairness matter. Direct fee arrangements—particularly those with minimums—can help ensure the level of service you provide is sustainable and appropriate to the plan’s complexity.
When evaluating advisor fees, it’s also essential to consider the level of service being provided. An advisor who serves in a fiduciary capacity and offers hands-on support—such as one-on-one onsite education, custom model portfolios, travel to multiple locations, and fiduciary due diligence training for the plan committee—is delivering a comprehensive service model. In these cases, a higher fee may be entirely appropriate. Evaluating both the amount charged and the scope of services delivered is critical to determining whether the advisory fee is truly reasonable and aligned with the plan’s needs.
- Custodial Fees: Usually charged as a small basis point fee, these cover trading and asset-holding costs. Custodial fees can also be included in the recordkeeping fee.
- Individual Service Fees: Charged to participants for specific transactions like loans or distributions.
- Legal Fees: May apply in complex compliance scenarios or during audits. While TPAs often handle routine questions, legal counsel may be required for more intricate matters.
- Audit Fees: Plans with over 100 participants must undergo an annual audit by an independent CPA, which may be paid by the sponsor or passed on to participants.
Some costs—like revenue sharing between recordkeepers and TPAs or sub-TA fees paid by mutual funds—may not be obvious. These are typically disclosed in the 408(b)(2) report, and it’s important to review these annually. If any indirect payments are being made, they should be scrutinized and, where appropriate, used to offset other plan expenses.
Retirement plans come with costs—that’s unavoidable. But it’s the plan sponsor’s fiduciary responsibility to ensure those costs are reasonable. Advisors play a crucial role in supporting this effort.
One of the most effective ways to validate pricing is through fee benchmarking, which should be done at least every three years. This process involves soliciting bids from multiple providers to evaluate your plan’s competitiveness. The goal isn’t always to find the lowest-cost option but rather to identify providers that offer fair value relative to their services. It also creates an opportunity to negotiate with current providers or reevaluate what features truly matter to the sponsor and participants.
While fee compression was a dominant trend for many years, we’re now seeing somewhat of a shift. More recordkeepers and TPAs are beginning to increase fees to keep up with rising operational costs. These include higher employee compensation, increases in software and technology expenses, and growing insurance premiums—particularly around cyber liability and fraud protection. As these costs rise, it’s more important than ever for advisors to help plan sponsors understand what they’re paying for and ensure the value received aligns with those rising fees.
Every dollar spent on fees is a dollar not growing toward retirement. Advisors who understand the full spectrum of retirement plan fees—and can clearly explain their impact—position themselves as true partners in helping both sponsors and participants achieve their financial goals.
