If you’re an HR lead, CFO, or small business owner, this page is for you. Most small 401(k) plans are overpaying—and it’s not your fault. But it is your job to fix it.

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The Reality for Small Plans Small retirement plans often pay more. That’s not a conspiracy—it’s basic economics. Fewer assets = less buying power. Until you hit around $1 million in plan assets, most providers lump you into their worst-priced tiers.

But here’s the part that’ll frustrate anyone paying attention: once your plan finally grows to $1 million, your current provider doesn’t proactively offer you a better deal—they just keep collecting. Meanwhile, other providers will sprint across traffic to sell you their shiny new thing, with lower fees, better service, and all the bells you never got.

And it’s not just you—roughly 80% of all 401(k) plans in the U.S. have under $5 million in assets. That’s where most of the overpaying happens, quietly and consistently.

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What Are You Actually Paying For?

Here’s where it gets tricky:

• Fund fees: Embedded in the investment options. Some are over 1% and hiding in plain sight.
• Recordkeeping & admin: Often bundled and hard to decipher.
• Advisor compensation: You probably have no idea what your advisor is being paid. They used to have to disclose it if it was over $5,000—they technically still do—but thanks to 5500 changes, it’s not on Schedule C anymore. That info got buried. Convenient, right?I’m an advisor too—I’m not saying we shouldn’t be paid. The rules say compensation must be “reasonable,” but that’s wide open to interpretation. If I’m on-site weekly, helping employees, fielding questions, and making sure your plan actually works—that’s real value. But if I’m just golfing with the owner and talking about his personal portfolio? That’s not okay.
• Audit costs: Once you hit 100 eligible participants, you’re required to hire a third-party CPA to audit your plan—and that often costs $8,000 to $15,000+ per year.

Oh, and fee disclosures? 408(b)(2) was supposed to be a game changer. Clear, transparent, finally tell you what everyone’s getting paid. Instead, it got lobbied into a fog of jargon and flexibility so dense it’s borderline satire. Some of these things require an MIT degree or a psychic to interpret. Most employers just give up and assume it must be fine. Spoiler: it’s usually not.

The punchline: you could be spending $500–$800 per participant, per year without even knowing it. Not just a vague notion of basis points. Real money. There’s a reason someone invented that cute little term “bps” (basis points)—to make dollars feel smaller.

And yes, I’ve seen the worst of it. I once reviewed a plan where the advisor was collecting $35,000 a year—and was married to the CEO. That’s not just unethical—it’s illegal. The TPA knew and did nothing. We had to step in and say, “You could be forced to repay that.” Outlier case? Sure. But it proves the point: a lot of people treat these plans like piggy banks.

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Why Are So Many Plans Set Up This Way?

Because most 401(k) plans are built backwards:

• Owner says to their wealth advisor: “Hey, do you do 401(k)s?”
• Wealth advisor says: “Of course I do.”
• Then calls the last wholesaler they had lunch with.

There are well over 300,000 advisors in the U.S.—but only a small fraction actually specialize in retirement plans. Most of the rest just stumble into a 401(k) because a client asked about it. They call a wholesaler, get handed a cookie-cutter setup, and move on. At one recordkeeper I worked for, we had 50,000 plans and 35,000 unique advisors. That tells you everything.

401(k) wholesalers exist to help advisors sell plans they don’t actually understand. And that’s by design. Top wholesalers make $300K to $400K a year and are expected to bring in $100M+ in new plan assets annually. Bigger broker-dealers now have internal guardrails too—if a plan gets big enough, their rank-and-file reps are forced to bring in a specialist team. But below that threshold? I don’t want to say “anything goes” but that’s kind of what happens. Joe Schmo advisor that’s never sold a plan and just got a job as a “vice president” at so-and-so broker dealer? No problem if they set up a brand new 200-person 401(k) plan with 2.5% in fees that may not change for 10 years.

By the way, they throw around the “Vice President” title like candy at broker-dealers and advisory firms.  Don’t be impressed by that.

Here’s another issue that rarely gets talked about: advisor turnover. The person who set up your plan may not be the one still servicing it—and even if they are, that doesn’t guarantee they know what they’re doing. A huge number of advisors rotate out of roles, change firms, or simply lose interest once the plan is up and running. In fact, surveys show that more than half of clients left their advisors in the past year, and over a third of financial advisors are expected to retire within the next decade. If your plan was built by someone who isn’t around anymore—or worse, never specialized in this space to begin with—how confident are you in what was left behind?

The result? Tens of thousands of plans priced poorly, designed poorly, and serviced poorly.  And many plan sponsors are blissfully unaware.

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How to Know If You’re Overpaying

If you’re not sure, here are the red flags:

• You can’t easily list all your plan fees.
• Your advisor rarely talks to you, if at all.
• Your plan failed testing and no one could explain why.
• You have an annual audit but don’t know why or if you really even need it.
• Your employees are disengaged or confused.

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What You Can Do Now

You don’t need to rip your plan out and start over. You just need a second opinion from someone who actually knows how these things work.  Reach out to me for a:

• Free plan fee review
• Audit cost strategy
• Lineup, service provider, and advisor compensation analysis

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Bottom Line

Most small 401(k) plans don’t suck because the owner screwed up. They suck because the system is designed to steer them toward bad decisions.

But that doesn’t mean you have to stay stuck with one.

Let’s fix it.

This content is for informational purposes only and does not constitute legal or investment advice. Always consult with a licensed professional before making decisions related to your retirement plan.