Small and mid-sized businesses are systematically being charged unexpected fees for retirement plans, with negative consequences for plan sponsors and participants, a new survey from the plan provider Human Interest found.
Two-thirds of small and mid-sized businesses surveyed report paying fees they didn’t anticipate when selecting their current retirement plan provider. These include charges for third-party services such as auditors and ERISA counsel; value-add services, such as fidelity bond and compliance support; and routine plan events, such as participant searches, compliance updates and IRS filings, which are mandatory or standard administrative processes for retirement plans.
“Small and medium-sized businesses are being nickel-and-dimed for every retirement plan transaction, distribution and plan event,” said Rakesh Mahajan, chief revenue officer for Human Interest. “Transaction fees add up in administration time, in cost and in confusion for employees. These employers are the key to better retirement security for American workers and should not be treated like a revenue stream. Transparent, predictable pricing is the standard the industry should be held to.”
See also: 6 trends shaping the future of retirement plans
Employers said additional services and plan event fees consume up to 60% of their total plan costs. Nearly three-quarters reported that these fees drove up the overall cost of their benefits program, forcing employers into tough tradeoffs:
- 13% terminated their plan because they couldn’t afford additional, unexpected costs;
- 26% lowered their matching contribution to save money;
- 31% cut other benefits to compensate; and
- 27% switched to a provider with more transparent pricing as a result of unexpected fees.
Fees can force workers out of retirement plans
Transaction fees are also a burden for workers. Fees charged to access savings have led to confusion, complaints and, in some cases, prompted participants to withdraw from the plan.
The research also uncovered counterintuitive findings about the value of pooled employer plans (PEPs), actively marketed to small businesses as a simpler and more cost-effective alternative to standalone 401(k)s. PEP sponsors report they were far more likely than 401(k) sponsors to have paid unexpected fees (89% vs. 53%) and spent about two-thirds more in total annual plan costs than 401(k) sponsors. One-quarter hired ERISA counsel, despite PEPs being specifically designed to offload fiduciary liability from the employer. And PEP sponsors spent 81% more time each week managing the plan than 401(k) sponsors, undercutting a core selling point.
For many small and mid-sized business owners, overseeing third-party services and administrative fees has become almost synonymous with managing the retirement plan itself. On average, respondents dedicated 4.2 hours a week to overseeing third-parties, value-add services and participant issues related to individual transaction fees. This amounts to 93% of the total time they spent administering the benefit. Based on respondents’ average salary reported in the survey, this amounts to roughly $12,870 a year spent on managing fees instead of running their business.
Transaction fees could have added up to nearly $4 billion in expenses for participants and administrators in 2025, Human Interest estimated.
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