Most workers don't know they pay 401(k) fees, research finds

A 401(k) account can look like a straightforward paycheck deduction until the fees buried inside it start taking real money out of retirement savings. A July 2021 Government Accountability Office review found that almost 40 percent of 401(k) plan participants do not fully understand fee information, and the Consumer Financial Protection Bureau has said more than 70 percent of people with 401(k)s do not realize they are paying fees at all.

Those costs matter because they compound for decades. Demos estimated that 401(k) fees can cost a median-income two-earner family nearly $155,000 over a lifetime and consume almost one-third of investment returns. A February 2024 Consumer Federation of America report said high-cost small-company 401(k) plans can drain retirement savers of hundreds of thousands of dollars over their careers.

The Labor Department moved to force more transparency in February 2012, finalizing rules under 29 CFR § 2550.404a-5 that require participant-level fee disclosures in 401(k)-type retirement plans. The department also offers a fee-disclosure tool and a consumer publication, “A Look at 401(k) Plan Fees,” to help workers decode what they are paying and where the charges show up.

The best place to start is the annual plan disclosure and the fund lineup inside it. The participant-level notice should spell out plan administration costs, individual service fees, and the expense ratios charged by each investment option. If a plan menu includes several target-date or stock funds, the cheapest option is not always the one with the biggest balance, because even small differences in expense ratios can widen over time.

Industry data suggest fees have eased, but the totals are still large because the market is enormous. The Investment Company Institute said 401(k) plan assets reached $8.9 trillion at year-end 2024, while participants investing in equity mutual funds paid an average expense ratio of 0.26 percent. The Government Accountability Office also has said 401(k) fees have generally decreased since 2012, but lower average costs do not help workers who are stuck in expensive plans with limited choices.

That is where direct pressure on employers and advisers can pay off. Workers can ask for the full fee schedule, compare expense ratios across available funds, and request lower-cost index options if the menu is dominated by pricier active funds. In small-company plans, where the Consumer Federation of America found costs can be especially punishing, repeated questions about recordkeeping charges and investment options can be the difference between a plan that quietly erodes wealth and one that preserves it.