Who's Really Paying for Your 401(k)? Why Employees Shouldn't Pay the Fees.

Imagine telling your employees, “Hey, we’re going to give you a great retirement benefit — and then quietly take 0.7% of your savings every year to pay for it.” Sounds generous, right?

That’s exactly what happens when employers allow 401(k) plan fees to be deducted from participant accounts instead of paying them directly. It’s common. It’s easy. And it’s quietly draining the future wealth of your workforce.

The Hidden Drain: Asset-Based Fees in Action

Let’s put some numbers to it. Let's suppose someone has a $150,000 balance in their 401(k), adds $8,600 per year in contributions (deferrals + match), with a 7% annualized return on investments and fees of 0.70%. Over 10 years, with consistent contributions and investment returns, that participant’s account would grow to roughly $357,000 — if no fees were taken out. But with a 0.70% annual fee deducted from plan assets, they’d pay nearly $25,000 in cumulative fees over that same time. Let that sink in: $25,000 — gone from one person’s retirement savings, just to cover costs that could be paid directly by the employer, often at a significant net discount, for the benefit.

The Tax Angle: It’s Cheaper Than You Think for Employers

Let’s say your plan has 30 employees, each with an average balance of $150,000. That’s $4.5 million in total plan assets. With a 0.70% asset-based fee, your provider is collecting $31,500 a year — directly from employee accounts.

That’s $1,050 per employee, every year. Broken down over 26 biweekly paychecks, that’s about $40 per paycheck quietly disappearing from their savings. In some cases, employees could be paying more in fees than they're contributing. Here’s where it gets interesting.

If you, the employer, pay that $31,500 fee directly instead of letting it be pulled from employee accounts, you can deduct that cost as a business expense. With corporate tax rates hovering around 29%, your net out-of-pocket cost is just $22,387 — and with some tax incentives, it could be even less.

In other words...by covering the cost directly, you reduce employee drag by $40 per paycheck and only spend $22 per paycheck (post-tax) as the employer. Also, when the expense hits your P&L, you're less likely to have a provider with sky high fees so that cost probably comes down too just from negotiating to avoid the stealthy fee hikes that get hidden by asset based pricing. On average, small plans in Northeast Wisconsin paid their 401(k) provider a whopping $2,362 more in 2023 than in 2022, and fees in 2024 are likely to have increased by similar amounts.

Not only do your employees come out ahead — so do you, reputationally and morally. It’s a small price to pay to build trust and deliver real value.

A Better Stewardship Model

There’s a better way. Paying plan expenses directly allows:

Greater transparency with employees - no more using share classes to hide fees
Tax efficiency for the business
Better long-term outcomes for savers
Control over costs instead of being subject to market-driven inflation

Most importantly, it sends a clear message: We value your retirement — and we’re not going to quietly skim from your savings to pay our bills.

Bottom Line

Redirecting plan fees to the employer side of the ledger is not just smart finance — it’s moral leadership, especially for companies that claim to care about their people. Want to be the kind of employer who stands out? Start by shouldering the costs your employees have been quietly carrying for years. It might not cost as much as you think — and the goodwill it generates can be worth even more.

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