If you’re a business leader exploring a 401(k) for your employees, you probably have the same first question everyone else does: “How much is this going to cost us?”
The short answer: it depends.
The long answer: there are four main cost categories, and how you structure them determines whether you get a fair, sustainable plan—or one that frustrates employees and exposes your company to liability.
Think of a 401(k) like building a house—you’ll pay for the architect, the contractor, and the materials. Skip one, and the whole structure is at risk. The same is true for retirement plans.
Most 401(k) plans have four main areas of expense:
This is the company (Fidelity, Charles Schwab, Vanguard, etc.) that holds the plan’s assets, processes payroll contributions, issues notices, and provides the employee login portal.
Cost drivers: number of employees, total assets, and features trustee services, delivery notice, or 3(16) services
A retirement plan advisor helps design the plan, keep it compliant, manage the investment lineup, benchmark fees, and educate employees. Without one, you’re captaining a ship without navigation equipment.
Cost drivers: plan size, fiduciary role (co vs. full), and the level of hands-on service you expect.
Sometimes separate from the recordkeeper, a TPA handles plan documents, compliance testing, Form 5500, and fixes if errors are found.
Cost drivers: plan complexity and number of employees
Every fund has an “expense ratio.” Lower is typically better.
Cost drivers: share classes used, balance in the fund, and whether your advisor helps you access lower-cost versions (like Collective Investment Trusts or CITs).
Several factors push costs up or down:
Here’s where it gets interesting.
Fees can be structured so that the company pays, the participants (employees) pay, or you share the cost.
Example: One company with $4 million in assets had an owner holding $2 million. Because participants paid the fees, that single owner paid half of all plan costs. In many cases, it may be smarter for the company to cover fees—both for fairness and for the tax deduction.
As your plan grows, your fees should shrink on a percentage basis.
But here’s the catch: vendors rarely volunteer to lower their fees.
Example: Imagine your company doubles in size. Great news—more employees usually means more plan assets. But if nobody is monitoring fees, your recordkeeper or TPA may keep charging the same rate even though a sliding scale or asset-based pricing should reduce costs. Unless someone benchmarks and renegotiates, you could be overpaying thousands of dollars each year.
Fund companies constantly release cheaper versions of the same investments. If nobody checks, employees may pay far more than necessary.
Example: Think of it like paying $5.00 for a gallon of milk at the corner store when the grocery down the street sells the exact same milk for $2.50. The product is identical—the only difference is whether someone bothered to shop smarter.
A transparent proposal and a well-run plan should give you confidence in these areas:
A corporate 401(k) isn’t just an employee perk—it’s one of the most visible signals that you care about your people’s future. But to get it right, you need to look beyond the sticker price.
A plan that’s “cheap” on paper but leaves you exposed to compliance errors or employee lawsuits is the most expensive kind of plan you can have.
You now know the four cost buckets—recordkeeper, advisor, TPA, and investments.. With this framework, you can quickly assess whether your plan is fairly priced or if you’re overspending.
The truth: ignoring these costs doesn’t just drain budgets. It risks compliance problems, employee frustration, and even legal exposure.
Next step: Compare your current fees against these benchmarks. Document who pays each portion. Review your lineup for cheaper options. And don’t wait for renewal season—request a transparent, line-item proposal now.
That’s where Carnegie comes in. We help organizations cut unnecessary costs and build plans that are fair, sustainable, and protective of both employees and the business.
You deserve a retirement plan that works as hard as you do. Let’s build it together.
For informational and educational purposes only. Opinions are subject to change.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
You may also visit our website at: https://www.carnegieinvest.com