Understanding Retirement 

Plan Fees and Expenses
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This booklet constitutes a small entity compliance 

guide for purposes of the Small Business Regulatory 

Enforcement Fairness Act of 1996.
U.S. Department of Labor

Employee Benefits Security Administration

Understanding Retirement 

Plan Fees and Expenses December2011

1

Understanding Retirement 

Plan Fees and Expenses

As the sponsor of a retirement plan, you are helping 

your employees achieve a secure financial future. 

Sponsoring a plan, however, also means that you, or 

someone you appoint, will be responsible for making 

important decisions about the plan’s management. Your 

decisionmaking will include selecting plan investments 

or investment options and plan service providers. Many 

of your decisions will require you to understand and 

evaluate the costs to the plan.

The Federal law governing private-sector retirement 

plans, the Employee Retirement Income Security Act 

(ERISA), requires that those responsible for managing 

retirement plans — referred to as fiduciaries — carry out 

their responsibilities prudently and solely in the interest 

of the plan’s participants and beneficiaries. Among other 

duties, fiduciaries have a responsibility to ensure that the 

services provided to their plan are necessary and that the 

cost of those services is reasonable. 

This booklet will help you better understand and 

evaluate your plan’s fees and expenses. While the focus 

is on fees and expenses involved with 401(k) plans, many 

of the principles discussed in the booklet also will have 

application to all types of retirement plans.

Remember, however, that this booklet provides a 

simplified explanation of plan and investment fees. It is 

not a legal interpretation of ERISA or other laws, nor is it 

intended to be a substitute for the advice of a retirement 

plan or investment professional. 
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Why consider fees?

Plan fees and expenses are important considerations 

for all types of retirement plans. As a plan fiduciary, you 

have an obligation under ERISA to prudently select and 

monitor plan investments, investment options made 

available to the plan’s participants and beneficiaries, 

and the persons providing services to your plan. 

Understanding and evaluating plan fees and expenses 

associated with plan investments, investment options, 

and services are an important part of a fiduciary’s 

responsibility. This responsibility is ongoing. After 

careful evaluation during the initial selection, you will 

want to monitor plan fees and expenses to determine 

whether they continue to be reasonable in light of the 

services provided.

There has been a dramatic increase in the number 

of investment options, as well as level and types of 

services, offered to and by plans in which participants 

have individual accounts. In determining the number of 

investment options and the level and type of services 

for your plan, it is important to understand the fees 

and expenses for the services you decide to offer. The 

cumulative effect of fees and expenses on retirement 

savings can be substantial.

When plans allow participants to direct their 

investments, fiduciaries need to take steps to 

regularly make participants aware of their rights and 

responsibilities under the plan related to directing 

their investments. This includes providing plan and 

investment related information, including information 

about fees and expenses, that participants need to 

make informed decisions about the management of 

their individual accounts. Participants must receive the 

information before they can first direct their investments 

in the plan and annually thereafter.
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What are the types of plan fees 

and who pays for them?

There are a variety of plan fees and expenses that may 

affect your retirement plan. The following is an overview 

of some of those fees and expenses and the different 

ways in which they may be charged.

Plan fees and expenses generally fall into three 

categories:

Plan administration fees. The day-to-day operation 

of a plan involves expenses for basic administrative 

services — such as plan recordkeeping, accounting, 

legal and trustee services — that are necessary for 

administering the plan as a whole. In addition, a 

profit sharing or 401(k) plan also may offer a host of 

additional services, such as telephone voice response 

systems, access to a customer service representative, 

educational seminars, retirement planning software, 

investment advice, electronic access to plan 

information, daily valuation, and online transactions.

In some instances, the costs of administrative services 

will be covered by investment fees that are deducted 

directly from investment returns. In other instances, 

when the administrative costs are billed separately, 

they may be borne, in whole or in part, by the 

employer or charged directly against the assets of the 

plan. In the case of a 401(k), profit sharing, or other 

similar plans with individual accounts, administrative 

fees are either allocated among individual accounts in 

proportion to each account balance (i.e., participants 

with larger account balances pay more of the allocated 

expenses (a “pro rata” charge)) or passed through as 

a flat fee against each participant’s account (a “per 

capita” charge). Generally the more services provided, 

the higher the fees. 
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Investment fees. By far the largest component of 

plan fees and expenses is associated with managing 

plan investments. Fees for investment management 

and other related services generally are assessed as a 

percentage of assets invested. Employers should pay 

attention to these fees. They are paid in the form of 

an indirect charge against the participant’s account 

or the plan because they are deducted directly from 

investment returns. Net total return is the return 

after these fees have been deducted. For this reason, 

these fees, which are not specifically identified on 

statements of investments, may not be immediately 

apparent to employers. (See pages 5-9 for more 

information on investment-related fees.)

Individual service fees. In addition to overall 

administrative expenses, there may be individual 

service fees associated with optional features offered 

under an individual account plan. Individual service 

fees may be charged separately to the accounts of 

those who choose to take advantage of a particular 

plan feature. For example, fees may be charged to 

a participant for taking a loan from the plan or for 

executing participant investment directions.

Plan administrative and investment services may be 

provided through a variety of arrangements: 

Some or all of the various plan services and 

investment alternatives may be offered by one 

provider for a single fee paid to that provider 

(sometimes referred to as a bundled arrangement). 

The provider will then pay, out of that fee, any other 

service providers that it may have contracted to 

provide the services. 

In other cases, plans may obtain services and 

investments from a variety of providers (sometimes 

referred to as an unbundled arrangement). The 
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expenses of each provider (e.g., investment manager, 

trustee, recordkeeper, communications firm) are 

charged separately.

Plans also may use an arrangement that combines 

a single provider for certain services, such as 

administrative services, with a number of different 

providers for investments.

Fees need to be evaluated keeping in mind the cost 

of all covered services.

What fees are associated with the 

investment choices in my retirement 

plan?

Apart from fees charged for administering the plan itself, 

there are two basic types of fees that may be charged 

in connection with plan investments or investment 

options made available to participants and beneficiaries. 

These fees, which can be referred to by different terms, 

include:

	 n Sales charges (also known as loads or commissions). 

These are basically transaction costs for buying and 

selling shares. They may be computed in different 

ways, depending on the particular investment 

product.

	 n Management fees (also known as investment 

advisory fees or account maintenance fees). These 

are ongoing charges for managing the assets of 

the investment fund. They are generally stated as 

a percentage of the amount of assets invested in 

the fund. Sometimes management fees may be 

used to cover administrative expenses. You should 

know that the level of management fees can vary 

widely, depending on the investment manager and 

the nature of the investment product. Investment 
6

products that require significant management, 

research, and monitoring services generally will 

have higher fees. (See page 9.) Be aware that higher 

investment management fees do not necessarily mean 

better performance.

In addition, there are some fees that are unique to 

specific types of investments. Following are brief 

descriptions of some of the more common investments 

available to retirement plans and explanations of some of 

the different terminology or unique fees associated with 

them.

Some common investments and related fees:

Most investments offered by smaller plans pool the 

money of a large number of individual investors. 

Pooling money makes it possible for smaller plans and 

participants in individual account plans to diversify 

investments, to benefit from economies of scale, and to 

lower their transaction costs. These pooled funds may 

invest in stocks, bonds, real estate, and other investments. 

Larger plans, by virtue of their size, are more likely to 

pool investments on their own — for example, by using a 

separate account held with a financial institution. Smaller 

plans generally invest in commingled pooled investment 

vehicles offered by financial institutions, such as banks, 

insurance companies, or mutual funds. Generally, 

investment-related fees, usually charged as a percentage 

of assets invested, are paid by the participant or the plan. 

Mutual funds. Mutual funds pool and invest the money 

of many people. Each investor owns shares in the mutual 

fund that represent a part of the mutual fund’s holdings. 

The portfolio of securities held by a mutual fund is 

managed by a professional investment adviser following 

a specific investment policy. In addition to investment 

management and administration fees, you may find these 

fees: 
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	 n Some mutual funds assess sales charges (see above 

for a discussion of sales charges). These charges may 

be paid when you invest in a fund (known as a frontend load) or when you sell shares (known as a backend load, deferred sales charge, or redemption fee). 

A front-end load is deducted up front and, therefore, 

reduces the amount of your initial investment. A 

back-end load is paid when the shares are sold. A 

back-end load is determined by how long you keep 

your investment. There are various types of back-end 

loads, including some that decrease and eventually 

disappear over time. 

	 n Mutual funds also may charge what are known as 

12b-1 fees, which are ongoing fees paid out of fund 

assets. 12b-1 fees may be used to pay commissions 

to brokers and other salespersons, to pay for 

advertising and other costs of promoting the fund to 

investors, and to pay various service providers to a 

plan pursuant to a bundled services arrangement. 

	 n Some mutual funds may be advertised as “no load” 

funds. This can mean that there is no front- or backend load. However, there may be a 12b-1 fee. 

Collective investment funds. A collective investment 

fund is a trust fund managed by a bank or trust company 

that pools investments of retirement plans and other 

similar investors. Each investor has a proportionate 

interest in the trust fund assets. For example, if a 

collective investment fund holds $10 million in assets 

and your investment in the fund is $10,000, you have a 0.1 

percent interest in the fund. Like mutual funds, collective 

investment funds may have a variety of investment 

objectives. There are no front- or back-end fees 

associated with a collective investment fund, but there 

are investment management and administrative fees. 
8

Variable annuities. Insurance companies frequently offer 

a range of investment alternatives for individual account 

plans through a group variable annuity contract between 

an insurance company and an employer on behalf of a 

plan. Variable annuities include one or more insurance 

elements, which are not present in other investment 

alternatives. Generally, these elements include an 

annuity feature, interest and expense guarantees, and 

any death benefit provided during the term of the 

contract. The variable annuity contract “wraps” around 

investment alternatives, often a number of mutual 

funds. Participants select from among the investment 

alternatives offered, and the returns to their individual 

accounts vary with their choice of investments. 

In addition to investment management fees and 

administration fees, you may find these fees: 

	 n Insurance-related charges are associated with 

investment alternatives that include an insurance 

component. They include items such as sales 

expenses, mortality risk charges, and the cost of 

issuing and administering contracts.

	 n Surrender and transfer charges are fees an insurance 

company may charge when an employer terminates 

a contract (in other words, withdraws the plan’s 

investment) before the term of the contract expires 

or when a participant withdraws an amount from 

the contract. These charges may be imposed if these 

events occur before the expiration of a stated period 

and commonly decrease and disappear over time. 

They are similar to an early withdrawal penalty on 

a bank certificate of deposit or a back-end load or 

redemption fee charged by some mutual funds.

Pooled guaranteed investment contract (GIC) funds. A 

common fixed income investment option, a pooled GIC 

fund generally includes a number of contracts issued by 

an insurance company or bank paying an interest rate 
9

that blends the fixed interest rates of each of the GICs 

included in the pool. There are investment management 

and administrative fees associated with the pooled 

GIC fund. 

While the investments described above are common, 

plans also may offer other investments that are not 

described here (such as employer securities). 

What other factors might have an 

impact on the fees and expenses of 

my retirement plan?

Funds that are “actively managed” (i.e., funds with an 

investment adviser who actively researches, monitors, 

and trades the holdings of the fund to seek a higher 

return than the market as a whole) generally have higher 

fees than funds that are “passively managed” (see 

below). The higher fees are associated with the more 

active management provided and increased sales charges 

from the higher level of trading activity. While actively 

managed funds seek to provide higher returns than 

the market, neither active management nor higher fees 

necessarily guarantee higher returns.

Funds that are “passively managed” generally have 

lower management fees. Passively managed funds 

seek to obtain the investment results of an established 

market index, such as the Standard and Poor’s 500, by 

duplicating the holdings included in the index. Thus, 

passively managed funds require little research and less 

trading activity.

What steps can I take to evaluate 

plan fees and expenses? 

Fees and expenses are one of several factors to consider 

when you select and monitor plan service providers 
10

and investments. The level and quality of service and 

investment risk and return will also affect your decisions. 

	 n Begin by establishing an objective process to aid in 

your decisionmaking. This process should include an 

understanding of the fees and expenses you will pay 

and a review of those charges as they relate to the 

services to be provided and the investments you are 

considering. 

	 n Before negotiating with prospective providers, 

think about the specific services you would like 

from a service provider (e.g., legal, accounting, 

trustee/custodian, recordkeeping, investment 

management, investment education or advice). 

Include the types and frequency of reports you wish 

to receive, communications to participants, meetings 

for participants, and the frequency of participant 

investment transfers. 

	 n You will also need to consider the level of 

responsibility you want the prospective service 

provider to assume, the services that must be 

included in any retirement plan, the possible extras 

or customized services you wish to provide, and 

optional features, such as loans, Internet trading, and 

telephone transfers. 

	 n Once you have a clear idea of your requirements, 

you are ready to begin receiving estimates from 

prospective providers. Give all of them complete 

and identical information about your plan and the 

features you want so that you can make a meaningful 

comparison. This information should include the 

number of plan participants and the amount of plan 

assets as of a specified date. 

	 n For a service contract or arrangement to be 

reasonable, service providers must provide certain 
11

information to you about the services they will provide 

to your plan and the compensation they will receive. 

This information will assist you in understanding 

the services, assessing the reasonableness of the 

compensation (direct and indirect), and determining 

any conflicts of interest that may impact the service 

provider’s performance. 

	 n Once you have selected a service provider or 

investments, be prepared to monitor the level 

and quality of the services and performance 

of investments to make sure they continue to 

be reasonable and they suit the needs of your 

employees. Make sure that you receive information 

on a regular basis so that you can monitor investment 

returns and service provider performance and, 

if necessary, make changes. Review any notices 

received from the service provider about possible 

changes to their compensation and the other 

information they provided when hired (or when the 

contract or arrangement was renewed).

By continuing to ask questions, you can make better 

decisions for your plan and your employees. 

How do I need to provide fee 

and expense information to the 

participants in my plan?

For plans that allow participants to direct the investments 

in their accounts, plan and investment information, 

including information about fees and expenses, must 

be provided to participants before they can first direct 

investments and periodically thereafter – primarily on 

an annual basis with information on fees and expenses 

actually paid provided at least quarterly. The initial plan 

related information may be distributed as part of the 

Summary Plan Description provided when a participant 

joins the plan as long as it is provided before the 
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participant can first direct investments. The information 

provided quarterly may be included with the Individual 

Benefit Statement. 

The investment related information needs to be 

presented in a format, such as a chart, that allows for 

a comparison among the plan’s investment options. 

A model chart is available on www.dol.gov/ebsa. If 

you use information provided by a service provider 

that you rely on reasonably and in good faith, you will 

be protected from liability for the completeness and 

accuracy of the information. 

In Conclusion ...

Fees and expenses are an important component in 

managing your retirement plan. For further information, 

you may want to consult the following resources at 

www.dol.gov/ebsa: 

	 n Meeting Your Fiduciary Responsibilities

	 n Selecting an Auditor for Your Employee Benefit Plan

	 n Reporting and Disclosure Guide for Employee 

Benefit Plans



U.S. Department of Labor

Employee Benefits Security Administration