Go beyond a basic 401(k)

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

5 min read

What’s the Cost of 401(k) for Small Business?

David Ramirez
April 19, 2024
What’s the Cost of 401(k) for Small Business?
Table of contents

What’s the cost of 401(k) for small business? What are the fees? How time-consuming will it be to manage it?

These are common questions from small business owners considering a 401(k). From the beginning, 401(k)s have been built and priced for big businesses, making them too expensive and time-consuming for the average small business to handle.

But times have changed.

Innovative, tech-enabled providers are making it possible for small businesses to get the same level of service and investment quality enjoyed by Fortune 500s — without the whopping Fortune 500-size costs.

Before we explain how to get the best low-cost plan for your business, let's answer some of the most common questions about 401(k) costs.

How Much Does a Typical Small Business 401(k) Cost?

Here's what the average annual cost of a 401(k) looks like for small businesses with 10 participants and $100,000 in assets, based on data from the 401(k) Book of Averages:

Average Small Business 401(k) Cost Example — $100,000 in Plan Assets

Asset-Based FeeTotal CostCost-Per Employee
Recordkeeping Fee2.00%$2,000$200
Trustee Fee0.23%$230$23
Investment & Advisory Fee1.74%$1,740$174
Total Cost3.97%$3,970$397

With nearly $4,000 in fees in the first year alone, it’s no wonder that many small businesses feel like a 401(k) is out of reach.

Now let’s have a look at how the costs change after several years. Let’s say the plan has grown to $500,000 (though the company still has 10 employees):

Average Small Business 401(k) Cost Example - $500,000 in Plan Assets

Asset-Based FeeTotal CostCost-Per Employee
Recordkeeping Fee0.36%$1,800$180
Trustee Fee0.05%$250$25
Investment & Advisory Fee1.44%$7,200$720
Total Cost1.85%$9,250$925

And for good measure, here’s the same plan at $1,000,000 in assets...

Average Small Business 401(k) Cost Example - $1 million in Plan Assets

Asset-Based FeeTotal CostCost-Per Employee
Recordkeeping Fee0.10%$1,000$100
Trustee Fee0.03%$300$30
Investment & Advisory Fee1.34%$13,400$1,340
Total Cost1.47%$14,700$1,470

As you can see, the asset-based percentage fees drop as the plan assets grow. Providers of 401(k)s favor larger plans, as it means more money for them. But in our opinion, $14,700 a year (or 1.47% of plan assets) is still much too high.

Whether you’re starting a brand new plan, or have some assets ready to invest, there are a few simple tactics you can use to get a low-cost plan that’ll help you maximize your savings.

First, let’s look at how 401(k) pricing is calculated.

The 4 Methods of Assessing 401(k) Fees

There are four ways by which 401(k) fees and costs are charged - each with its own applications and cost range.

1. By asset

Asset-based fees can range anywhere from 0.08% to 4% of plan assets.‍ These fees cover investment advice, trustee or custodial services, and investment fees.

2. Per participant

As the name implies, this is a fee charged per active or eligible employee in your plan. Participant fees typically cover recordkeeping and plan administration, and can range from $2 to $750 per participant.‍

3. By transaction

These are expenses for the execution of a particular plan service or transaction, like changing up the plan funds or applying for a loan. Some plans have no transaction fees; others may charge $70 or more per transaction.‍

4. Flat Fees

Flat fees are usually assessed annually and can vary widely, depending on the provider and what the fee covers.

What 401(k) Costs and Fees Cover:

1. Plan Setup

Initial costs for a 401(k) can be between $500 and $3,000. However, you might be able to offset those costs with tax credits.

The ‍Setting Every Community Up for Retirement Enhancement (SECURE) Act entitles eligible employers to claim a tax credit of up to $5,000 for three years to cover plan setup costs.

2. Recordkeeping and administration

Sometimes charged as asset-based fees, sometimes as per-participant fees, and sometimes as annual flat fees, recordkeeping and plan administration fees pay for an essential 401(k) plan services: tracking which employees are in the plan, how much money they’ve invested, and how much is invested in each of the plan’s funds.‍

3. Trustee services

Every 401(k) needs a designated trustee responsible for making investment decisions that are in the best interest of plan participants. This might be the business owner or an executive, but many providers offer directed trustee services, assuming some of the fiduciary liability by managing the entity holding the plan assets (the custodian) and executing investment decisions as directed by participants, the plan sponsor, or the investment manager.

4. Investment and advisory

Investment and advisory fees include both mutual fund expense ratios, as well as fees for investment management services.

Fund expense ratios are the percentage of retirement fund assets that plan participants pay for their investments and are often one of the most significant 401(k) costs. Advisory costs cover the services of a 401(k) advisor, who might assist with plan design, building and monitoring the mutual fund lineup, and providing investment advising services to participants.

5. Miscellaneous administration

Employees may need to pay a small fee for certain transactions. This includes fees for rollovers, loans, and withdrawals.

6. Termination

Plan sponsors can opt to terminate a plan that isn’t performing to their satisfaction, though the provider may charge fees for closing the plan down.

7. Marketing

Some mutual funds charge 12b-1 fees, which cover their marketing and distribution efforts. These annual fees can’t exceed 1% of your plan’s assets, but that’s a hefty sum, if your plan has $1 million in assets.

Who Pays 401(k) Fees?

Often, employers pay setup costs and administrative fees, while employees pay the asset-based fees. Advisory fees and admin fees can be paid by employers or employees, depending on the plan.

Either way, somebody is paying those fees. Everybody wins when we keep them as low as possible.

How Fees Impact Savings

You've already seen how average 401(k) costs can cut into the bottom line. Here's how those fees can impact employee retirement over the years:

A 30-year-old employee contributing $4,000 a year, with a 6% yearly return, with all-in fees of $0.6%, will have $390,028 in their account at age 65. Increase those fees to 1.9%, and they’d have $291,519 in their accounts — a difference of almost $100,000!


Prevent this kind of unpleasant situation by picking a 401(k) with minimal fees.‍

How to Get a Low-Cost 401(k) For Your Small Business

This might sound like a challenge, but it’s easier than you might think. ‍

Understand ALL the fees a provider charges

Administration fees, investment fees, management fees — all of these seemingly small charges can really add up. Any provider that you actually want to work with should be transparent and honest about the plan costs.

Still, it’s a bit of a “buyer beware” situation. Hidden fees are an issue with many 401(k) plans and providers. So we’d like to equip you with a tool against unfair fees — The ForUsAll Fee Evaluation Checklist: ‍


You can also send the Department of Labor's fee disclosure worksheet to each provider you're evaluating and ask them to complete it for you.

Limit fund selection to low-cost plan investments

There are many investment options available, so whenever possible, you want to go with low-cost, passively-managed index funds. Funds like Vanguard’s 2045 Target Date Fund (TDF) can offer impressive returns at low costs.

To make sure your plan has access to these high-quality, low-cost funds, be sure to go with a provider that has an open architecture, which means the provider allows you to build your fund lineup with any fund on the market.

Don’t forget about the tax benefits!

There are three big tax benefits that can help offset the cost of a 401(k):‍

1. Retirement plans startup cost tax credit

Qualified employers could receive $5,000 tax credits for the first three years of the plan. This can cover anything from setup and administration costs to participant education fees.

2. Administration Costs Tax Deduction

Some administrative costs can be deducted as a business expense.‍

3. Employer Contribution Tax Deduction

Employer contributions to your plan are exempt from federal, state, and payroll taxes, so long as they don’t exceed 25% of your employees’ total annual compensation. The maximum allowable deduction for 2023 is $330,000.

Factoring in these tax breaks can make a 401(k) a lot more feasible for your business.‍

Pick a fee structure that fits your business

Not all businesses have the same needs. To avoid surprisingly high fees later on down the line, pick a 401(k) provider with fees that will scale well with your specific business situation.

For example, if your employees are contributing a lot of money to the plan, and you don’t foresee adding a large number of employees to your operation, you might expect your plan’s assets to grow faster than your participant count. In that case, you might want to go with a provider that favors per-participant fees.

Doing this lets you and your employees avoid paying more fees as plan assets grow, potentially saving tens of thousands like we saw in our earlier example above. And that’d be a big win, right?‍

Go with a tech-enabled provider

A new crop of 401(k) providers is using technology to offer quality retirement plans at prices that accommodate the budgets of small and medium businesses.

Automatic compliance checks, payroll integration, virtual advisors, and online access to financial guidance services are some of the compelling capabilities of tech-enhanced plan providers.

These capabilities are immensely useful to small businesses — many of whom might not have the time, resources, or inclination to do everything 401(k)-related on their own. And the fees can be incredibly low.‍

A Better Era for 401(k) Plans

Hidden fees, complex charges, and less-than-transparent pricing have been standard fare in the world of 401(k) pricing. Luckily, those days are coming to an end! Whether you’re self-employed or a skyrocketing startup, your chances of getting a low-cost 401(k) for your business have never been better.

Contact ForUsAll today, and find out how easy (and affordable) it can be to launch a 401(k) for your business.

The modern 401(K) built for your business. Learn more.

Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
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About Author -
David Ramirez

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines, a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.