Fees and expenses are factors that may affect investment returns, and therefore impact people’s retirement income—participants can lose money to retirement plan fees if plan sponsors aren’t careful!

In a 401(k) plan, a person’s account balance will determine the amount of retirement income they will receive from the plan. While contributions to the account and the earnings on the investments will increase retirement income, fees and expenses paid by the plan may substantially reduce growth.

The following table demonstrates how varying levels of fees and expenses can impact the growth of a 401(k) plan account after 35 years, assuming a $25,000 starting balance, 7% annual return before expenses and fees, and no additional contributions.

Average Annual Fees and Expenses                     Ending Balance After 35 Years*                                
  0.5%        $226,556
  1.0%   $192,152
  1.5%        $162,846

*These are hypothetical examples and are not intended to reflect the actual performance of any specific investment, nor are they an estimate or guarantee of future value.

The effects of paying high fees can equal a real reduction in retirement savings for your employees’ futures. As their employer, the best approach you can take is to adopt an objective process to ensure your retirement plan fees are in alignment with other similarly sized plans. In my experience, I often see advisors comparing their clients' retirement plan fees to both industry averages and fees charged by other retirement plan providers at least every two years.

As a fiduciary, you must act in the best interest of your plan participants. In order to do this, you should have a clear understanding of what your retirement plan fees are and if they are reasonable in light of services rendered. Once you know this, you’ll be able to determine if it’s time for a change in providers.

Sentinel's Advisor Channel Consulting team of expert consultants are here to serve investment advisors and help develop high-performing retirement plans. Learn more.

For more information on retirement plan fees, check out these additional resources:




Socially Responsible Investing: Aligning Your Money with Your Values Hindsight is 2020: What Will You Do Differently This Year?