Quite a large number of the workforce in America use a retirement scheme that their employer provides, but it has been found through recent data that a hidden cost is slowly eating away at the future value of such savings. One surprise is that it largely depends on the company that is your employer.
Recent industry data published on April 11, 2025, reveals that employees of smaller companies could end up paying three times higher in plan fees compared to those working for larger companies. This is not the only one—it is also the access to good investment and the trend of moving money that are posing questions to millions of the retirement savers.
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Costs of Plans and Business Scale
The pricing of all retirement plans with a defined contribution is not the same. This is one significant aspect that can determine how much you are going to pay for the plan and it is usually a function of the employer’s size.
The overall cost of a defined-contribution plan includes both investment-related fees and administrative expenses. Although the costs have been decreasing over the past few years, there is a great gap between the plans of small and large employers.
Research has gathered that people in small plans—those with less than $25 million in assets—pay an average of 78 basis points in fees. On the other hand, the fees for participants in large plans are only 26 basis points.
This difference in fees has the consequence that the employees at the smaller firms could have their potential savings reduced by the tens of thousands of dollars across the time of their careers. Though the costs have been reduced on the whole, the gap between the plan sizes problem continues to hurt the small-plan participants a lot.
Quality of Investments: Are You in the Right Funds?
Aside from fees, the quality of the plan also depends on the investment options. For ones who save, the news looks good and there is something good to discover.
Most of the investment choices in the entire range of plans, regardless of the size, are now rated Medalist in the Morningstar universe, which means that they are worthy of Gold, Silver, or Bronze awards. Such funds are supposed to overrate their benchmarks over time after deducting fees.
Actually, the percentage of the rated investment options in the workplace that are Medalist-rated has reached 86%. And as much as 94% of the money deposited by the participants is sagaciously directed into these funds of the highest quality according to assets (in other words, asset-weighted).
More importantly, while those with larger plans did not shift towards better-rated funds with a too significant advantage, the participants of smaller plans also got the benefit of a frontline designation. Unsurprisingly, no more than 1% of the assets in these plans belong to the negatively ranked funds.
So Why Are Billions Still Leaving These Plans?
Yet the trend of money leakage from both the cost and quality- standpoints has still not been stopped. In the last year, $600 billion have been outflowing from defined-contribution plans annually.
One of the main triggers is a change of jobs. People, when in between jobs, usually prefer a direct rollover of their 401(k) into an IRA rather than their new plan. This action may look reasonable, but in most cases, it is not the best choice from the point of view of cost and propriety of management.
Financially literate individuals know that employer-sponsored retirement plans, especially larger ones, not only have lower fees through better negotiations but also have more active investment strategy than portfolios.
What To Do If Your Retirement Plan Is Small?
A small plan at your employer’s does not mean that you are in a worse position. However, this does mean that the following questions should be prepared:
- By how many basis points are the total annual fees calculated?
- Are the investment options Medalist-rated or low-cost index funds?
- Is there a less expensive plan that could be bought through a new employer or by means of consolidation?
Even a small difference of 30 basis points in fees can cause you to lose more than $50,000 in returns over the 30 years of saving. To be familiar with the features of the plan and the costs it might incur is the most effective way to secure the future of your retirement.
Substantial Change in Retirement Plans
The retirement system in the workplace has been revamped considerably, most specifically in the range of reducing fees and enhancing the quality of funds. Nevertheless, not all are on the same footing as those in smaller and high-cost plans, who have a lot to lose.
Prior to making a decision about the transfer of funds or the amount to contribute, it would be a good idea to become acquainted with the pattern of your workplace plan. You might be spending more money and receiving fewer profits without even knowing it.
