Is Your 401(k) Plan Failing You?
A CFO’s Guide to Audits, Hidden Fees, and Cost Savings
As a CFO, you already know that retirement plans aren’t just employee perks—they’re fiduciary liabilities, regulatory triggers, and major budget line items.
With Form 5500 filings due annually and many companies heading into year-end audits, now is the right time to evaluate whether your 401(k) plan is working for your people—and your P&L.
Unfortunately, most legacy plans are riddled with hidden fees, poor-performing funds, and compliance risks that go unnoticed until it’s too late.
Why Most 401(k) Plans Are Underperforming (and Overcharging)
Even if you haven’t heard complaints, it doesn’t mean your retirement plan is running smoothly. Many CFOs assume their broker or plan advisor is regularly benchmarking fees and fund performance. But unless you’ve done an independent 401(k) plan audit, here’s what may be hiding in plain sight:
- Revenue-sharing fees buried in fund expense ratios
- Outdated share classes with inflated pricing
- Excessive recordkeeping or advisory fees
- Poor-performing target date funds
- Fiduciary file gaps that increase risk exposure
These issues don’t just cost money—they can lead to regulatory penalties and participant dissatisfaction.
Key Areas to Evaluate in Your 401(k) Plan
1. Fee Transparency
Start by requesting a full breakdown of plan fees—investment, administrative, and advisory. Many employers unknowingly pay 25–65% more than peer companies due to bundled or opaque pricing structures.
2. Fund Performance
Compare your fund lineup to market benchmarks. Are your target date funds consistently underperforming? Are there cheaper, better-performing alternatives in the same asset class?
3. Share Class Optimization
Are you using institutional or retail share classes? The difference in cost can be significant—and many advisors don’t bring it up unless asked.
4. Vendor Compensation
How is your advisor paid? If they’re receiving commissions or revenue-sharing, you may not be getting truly objective advice.
5. Benchmarking Your Plan
Use third-party data to compare your fees and design to similar-sized plans in your industry. This is where platforms like PolicySmart™ excel—offering unbiased insight without selling any investment products.
Why This Matters to CFOs and New BOD Members
If you’re new to your CFO role—or if your board has recently undergone a change—your 401(k) plan is an ideal place to start your audit process. It reveals a lot about how your business manages compliance, financial stewardship, and employee value delivery.
With retirement lawsuits on the rise and regulatory scrutiny increasing, the cost of ignoring these issues is rising fast.
Frequently Asked Questions (FAQs)
What is a 401(k) plan audit?
A 401(k) audit is a comprehensive review of your retirement plan’s financials, fees, and compliance practices—often required for plans with 100+ participants. Independent audits can also uncover cost inefficiencies and fiduciary risks, even if not legally required.
What are hidden fees in a 401(k) plan?
401(k) hidden fees may include revenue-sharing from investment providers, asset-based advisory fees, or inflated fund expenses embedded in mutual fund share classes. These fees often go undisclosed unless specifically requested in a fee audit.
How can a company reduce 401(k) plan costs?
By benchmarking fees, unbundling services, and negotiating recordkeeping and investment fees. Many employers also benefit from switching to lower-cost share classes or restructuring their advisor arrangement.
What triggers the need for a 401(k) plan audit?
Plans with 100 or more eligible participants typically require an annual audit with Form 5500. However, even smaller companies should conduct regular fee and performance reviews to protect plan sponsors and participants.
Do I need to change my provider to save money?
Not necessarily. Many companies work with an independent consultant (like PolicySmart™) to audit and optimize their plan—while keeping existing relationships in place.
Your Fiduciary Duty Is Financial
Evaluating your 401(k) plan’s true cost and performance isn’t just good financial hygiene—it’s part of your responsibility as a plan sponsor. And it’s one of the few opportunities where cost savings, compliance improvement, and employee outcomes all align.
Ready to find hidden fees and reclaim retirement savings?