Retirement Plan Fees: 7 Strategies For Avoiding Costly Plan Fee Mistakes

Retirement plans like 401(k)s are valuable tools for attracting and retaining talent, while helping employees prepare for their futures. But for plan sponsors, offering a retirement plan also comes with fiduciary responsibility—and that includes managing plan fees. Excessive or poorly disclosed fees don’t just hurt participant outcomes; they expose sponsors to potential lawsuits, penalties, and reputational damage.

Recent History

The frequency of Employee Retirement Income Security Act excessive fee class action litigation surged by 35% in 2024, with even more ERISA class action cases filed with novel theories against both defined contribution and defined benefit plans. Most of the increased volume took place in the second half of the year, as filings spiked to a near-record pace.

Historically filed against only the largest organizations, an increasing number of smaller retirement plans have faced excessive fee litigation over the past couple of years. With this surge in litigation, it’s important that all fiduciaries, regardless of plan size, understand the steps they can take that may reduce exposure to excessive fee claims.

Here are seven actionable strategies retirement plan sponsors should implement to avoid costly plan fee mistakes and stay compliant in today’s regulatory landscape.

1. Benchmark Plan Fees Regularly
Fee benchmarking is not a “nice-to-have”—it’s a fiduciary obligation. As plan assets grow, sponsors often overlook whether they're still paying competitive rates for services like recordkeeping, administration, and investment management. A plan that was once priced fairly can quickly become overpriced as asset levels rise.

To avoid this, conduct fee benchmarking at least every three years—or more frequently if there are major changes to the plan. This involves comparing your plan’s fees to similar plans in terms of size, industry, and features. Plan sponsors should consider using tools from providers like Fi360 or other independent benchmarking firms. The DOL specifically recommends comparing services and fees against those of other providers.

2. Demand Transparent Fee Disclosures
Lack of transparency is a red flag in plan administration. All fees should be clearly disclosed—both at the plan level and participant level. These include:

• Investment expense ratios
• Recordkeeping fees
• Third-party administrator (TPA) fees
• Advisory and consulting fees

Fee disclosures should be detailed, written in plain language, and regularly reviewed. According to the DOL’s guidelines, sponsors must understand not only how much they are paying, but also how the service provider is compensated. Are fees paid from plan assets, revenue sharing, or direct invoices? This distinction matters and should be documented.

3. Watch for Conflicts of Interest in Fund Selection
A frequent misstep is overreliance on proprietary funds or bundled services from recordkeepers and investment firms. While they may offer convenience, proprietary funds are often more expensive and less transparent than institutional-class alternatives. Worse, they may create a conflict of interest if the provider is incentivized to promote their own products.

In recent years, multiple class-action lawsuits were filed against sponsors who used recordkeeper-affiliated funds without proper due diligence, arguing that lower-cost alternatives were available. The courts are increasingly siding with plaintiffs who show that fiduciaries failed to act in participants’ best interests.

The solution? Conduct a periodic (quarterly, for example) investment lineup review with an independent plan advisor (if you don’t already work with one). Look for lower-fee, institutional share classes, consider passive options, and document every fund replacement decision.

4. Closely Monitor Recordkeeping and Administrative Fees
Recordkeeping fees have also been under scrutiny in recent excessive fee lawsuits. Plaintiffs have alleged a practice known as “revenue sharing,” claiming that it inflates recordkeeping fees. Revenue sharing occurs when a mutual fund manager pays or “shares” part of its mutual fund’s fees with the recordkeeper for purposes that are unrelated to the management of the mutual fund, such as a marketing fee.

To fulfill their fiduciary duty and help manage and control recordkeeping and administrative fees, plan sponsors should consider the following best practices:

• Requesting a fully transparent, per-participant fee structure
• Requiring annual fee breakdowns from providers
• Periodically issuing RFPs (Requests for Proposals) to test the market

5. Stay on Top of Legislative and Regulatory Updates
Laws governing retirement plans are evolving rapidly. The SECURE 2.0 Act of 2022 introduced sweeping changes—from mandatory auto-enrollment to updated catch-up contribution rules. In 2024, the DOL proposed updates to 408(b)(2) disclosure rules, aiming to increase clarity around service provider compensation.

Plan sponsors must stay informed and adapt their plans accordingly. Work with ERISA counsel and advisors to ensure compliance with evolving requirements.

6. Educate Participants About Plan Fees
Many plan sponsors meet minimum regulatory disclosure requirements but fail to go the extra mile in educating participants. This leads to confusion, disengagement, and in some cases, distrust.

Create a culture of transparency by:

• Explaining how fees impact retirement savings
• Providing clear, periodic summaries of investment costs
• Offering tools that show net returns after fees

By embracing fee transparency, plan sponsors demonstrate a commitment to openness and honesty. This transparency fosters trust among employees, making them more confident in their retirement plans and in their employer's commitment to their financial security.

7. Engage a Plan Advisor or Consultant
You don’t have to navigate plan fee management alone. Plan advisors can provide objective advice, benchmark your plan, and review provider contracts without conflicts of interest.

An plan advisor helps:

• Conduct investment lineup due diligence
• Evaluate fee reasonableness
• Provide documentation for fiduciary files

Independent oversight sends a strong signal to regulators and participants that you're committed to doing the right thing.

Final Thoughts

Managing retirement plan fees is a critical part of delivering value to plan participants. With heightened scrutiny from regulators and increased litigation risks, plan sponsors must take a proactive and transparent approach to plan fee management.

The good news? These seven strategies aren't just about avoiding lawsuits—they’re about building trust, improving outcomes, and making your retirement plan a valuable benefit for your employees.

Informational Resources: PlanAdviser: “401(k) Excessive Fee Litigation Spiked to Near Record Pace in ’24” (January 13, 2025); U.S. Department of Labor: “Understanding Your Retirement Plan Fees” (accessed 5/13/25); Beacon Pointe Advisors: “The Biggest Mistakes Plan Sponsors Make” (accessed 5/13/25; Chubb: “The War on Plan Fees: Is Anyone Safe?” (accessed 5/14/25); Mercer: “DOL Starts Tackling SECURE 2.0 Reporting and Disclosure Updates” (accessed 5/14/25).