Why Many Local Businesses Are Overpaying for Their 401(k) Plan (And What to Do About It)

The issue isn’t just high fees. It’s a mix of outdated fund options, hidden revenue sharing, and sometimes unclear oversight. Let’s break down why this happens, what it means for your bottom line, and how you can address it.

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The Hidden Costs of 401(k) Plans

When employers review their retirement plans, they usually focus on the obvious expenses like recordkeeping, advisory fees, and investment management. But there are other, less visible costs that can add up. These typically show up in two main areas:

1. Outdated Fund Classes: Many plans use mutual funds with higher expense ratios, even when a lower-cost option is available. Think of it like paying $20 for a sandwich when the same one is available for $12.

2. Revenue Sharing: Some funds pay money back to the recordkeeper to help with administrative costs. While this might seem fine, it often means participants pay more and it’s hard to track exactly who’s paying what.

For businesses in the Carolinas, these hidden costs add up. Studies show that plans with $2 million to $25 million in assets often pay 20 to 40 percent more than they need to.

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Fiduciary Responsibility and Risk

As a business owner or HR leader, you’re already managing compliance, payroll, and benefits. When you offer a retirement plan, you also take on the role of fiduciary, which simply means you must act in your employees’ best interests regarding their retirement savings. This covers everything from choosing investments to keeping an eye on your service providers.

If you don’t monitor your plan closely, you could face:

• Excessive Fee Lawsuits: These are becoming more common, especially for mid-sized companies as attorneys focus on local businesses too.

• Audit Issues: The Department of Labor often flags employers for not properly documenting fee reviews or fiduciary processes. If you can’t show you’ve checked your plan’s fees, you could be at risk.

Ignoring your 401(k) isn’t just inconvenient, it can create real compliance headaches.

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Operational Challenges That Waste Time

Beyond the fees, many employers find that their retirement plans create ongoing administrative hassles. Some of the most common problems are:

• Manual payroll uploads, which can lead to errors and wasted time

• Slow loan and distribution processing that frustrates employees

• Eligibility mistakes, like misclassifying part-time or temporary staff

• Year-end testing struggles without clean data

For HR and finance teams, these issues don’t just eat up hours, they can also cause complaints and costly corrections if not fixed.

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Why This Happens So Often

Why do so many companies pay too much or struggle with their plans? The answer is simple: retirement plans are rarely anyone’s main area of focus. Your team is busy running payroll, closing the books, and recruiting. The 401(k) is just another item on the to-do list. Providers aren’t always upfront and may not move you to lower-cost funds because it cuts into their revenue. So, costs creep up and the process gets more complicated every year.

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A Familiar Scenario

Imagine you signed a lease for office space in Charlotte ten years ago. The rent was fair at the time, but if you’ve never renegotiated, you might be paying $30 per square foot while new tenants pay $22. Retirement plans work the same way. If no one is checking the fees and structure, you could be stuck paying old rates in today’s market.

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How to Benchmark Your Retirement Plan

Benchmarking isn’t about changing providers every year. It’s about comparing your plan’s fees, services, and investment options to what’s available right now. Here’s how to start:

• Break down all costs, both direct and indirect

• Make sure you’re using the lowest-cost fund options

• Spot recurring administrative pain points

• Keep written records of reviews and decisions to stay compliant

Done well, benchmarking can help you save tens of thousands of dollars each year for plans with $5 million to $25 million in assets; without cutting back on service.

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Making Retirement Plan Administration Easier

The best retirement plans don’t just save money; they also make life easier for your team. Modern solutions can automate payroll and eligibility, speed up loans and distributions, and offer dashboards for real-time oversight. For HR and finance leaders, streamlining these tasks means fewer interruptions and more time for strategic work.

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Local Expertise Matters

Retirement plans might be sold nationally, but your business challenges are local. Whether you’re in Charlotte, Fort Mill, Pineville, or anywhere else in the Carolinas, you need a partner who gets both fiduciary responsibility and the day-to-day realities of running a business in the Carolinas. Foundation Wealth & Tax Advisors works directly with employers to cut costs, reduce risk, and make plan administration simple.

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Conclusion: Take Control of Your Retirement Plan Costs

Your employees rely on you for a solid retirement benefit, but your business and your employees shouldn’t have to overpay for it. By reviewing fees, improving oversight, and fixing operational headaches, you can provide a better plan and peace of mind for yourself.

Foundation Wealth & Tax Advisors is located in Charlotte and specializes in helping local businesses lower plan costs, avoid compliance issues, and support better retirement outcomes for their teams; without adding more work to your plate.

Not sure what you’re really paying for your plan? Schedule a complimentary fee checkup to see how your plan stacks up. Click here to get started.

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Thank you for reading. Please review our disclosures.

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