How to Benchmark 401(k) Recordkeeping Fees Before Renewal

1. Start with the renewal calendar and a defined scope

Begin the review early enough to leave room for questions, negotiation, and a possible transition. Check the contract for notice requirements, automatic renewal provisions, termination charges, and restrictions on obtaining plan data. A benchmark completed after the cancellation window closes may still be useful, but it gives the employer fewer immediate options.

Define what you are evaluating before requesting quotes. Recordkeeping generally includes maintaining participant accounts and processing transactions, but a bundled arrangement may also include compliance testing, plan documents, participant communications, or other administrative work. Identify which services belong to the recordkeeper and which belong to a separate administrator, adviser, payroll provider, or internal team. Assign an internal owner to coordinate the review, with finance and HR agreeing on the questions the process needs to answer.

2. Build a complete picture of the current cost

The invoice paid by the employer is rarely a sufficient starting point on its own. Gather the current contract, applicable service-provider compensation disclosures, recent invoices, participant fee disclosures, and reports showing charges deducted from plan accounts. Ask the provider to explain how these documents reconcile and to identify compensation received indirectly.

Create a simple cost inventory using the categories below. Keep investment expenses and advisory fees visible, but separate from recordkeeping charges so the comparison does not confuse different services. If the recordkeeper receives compensation through investments, show that connection explicitly and avoid counting the same dollars twice.

• Employer-paid charges: recurring invoices, minimum fees, implementation costs, and separately billed administrative services.
• Plan- or participant-paid charges: asset-based fees, per-account charges, and other deductions used to pay for recordkeeping.
• Transaction charges: fees for loans, distributions, specialized processing, or other individual requests.
• Indirect compensation and credits: revenue sharing, fee offsets, and any account used to hold credits for eligible plan expenses.
• Exit and transition costs: termination charges, data-transfer fees, and services needed to move to another provider.

3. Give every provider the same comparison assumptions

A fee benchmark is only as useful as the assumptions behind it. Provide the incumbent and any competing providers with the same plan information: assets, participant accounts, payroll frequency, locations, contribution features, and required services. Distinguish employees eligible to participate from participants with balances, and identify former employees who still hold accounts. Providers may use different definitions when calculating fees.

Request a written quote that states what is included, what costs extra, and how pricing changes as the plan changes. Asset-based charges can increase as assets grow even if account volume stays relatively stable; per-account charges respond differently. Compare estimated annual dollar costs using the same current plan snapshot, rather than comparing a percentage from one provider with a flat fee from another. If using a benchmarking report, ask how its comparison group was selected and whether its service packages resemble yours.

4. Understand revenue sharing and who ultimately pays

Some arrangements use payments associated with plan investments to help cover recordkeeping costs. Others charge recordkeeping fees more directly. Neither label, by itself, establishes whether an arrangement is reasonable. The practical task is to understand total compensation, how offsets work, and how costs are allocated among participants and the employer.

Ask for a written reconciliation showing what the recordkeeper receives, what is credited back, and what happens when compensation differs from the agreed charge. Different investments may generate different payments, so participants may bear costs differently depending on their holdings. Changes to expense allocation or the use of plan assets can raise legal questions; consult qualified ERISA counsel before adopting a new approach.

• Which payments offset the stated recordkeeping fee, and when are those offsets applied?
• What happens if indirect compensation exceeds or falls short of the agreed amount?
• How are credits allocated, and are any balances subject to contractual restrictions?
• Would changing investment options or share classes alter the recordkeeper’s compensation?

5. Test service quality against actual operating needs

Price differences sometimes reflect meaningful differences in support. A lower quote may shift payroll reconciliation, employee inquiries, or correction work back to the employer. Before assigning value to a feature, ask who will use it, how often it matters, and whether it addresses a problem the plan actually has.

Use recent operating experience to guide the review. HR can identify recurring participant issues, while finance and payroll can describe reconciliation problems and manual workarounds. Ask providers to demonstrate relevant workflows rather than relying only on a feature list. Distinguish contractual service commitments from capabilities described in sales materials, and request clarity about escalation procedures and responsibility for resolving errors.

• Payroll integration: handling contribution changes, rejected files, and reconciliation exceptions.
• Participant support: access to help, issue resolution, and clear explanations of transactions and fees.
• Administration: responsibility for testing, notices, required filings, and coordination with other providers.
• Data protection and access: security practices, incident-response responsibilities, and the employer’s ability to retrieve records.

6. Document the decision and set the next review trigger

Summarize the comparison in a short decision memo: current costs, comparable alternatives, material service differences, unresolved questions, and the reason for retaining or replacing the provider. The objective is not to prove that the plan found the cheapest possible arrangement. It is to support a reasoned assessment of compensation and services based on the information available.

If retaining the provider, put negotiated pricing and service changes in writing. If changing providers, evaluate conversion expenses, payroll testing, data validation, participant communications, and any period when transactions may be restricted. Consult qualified counsel about contractual terms, applicable notices, and legal or tax questions. Establish the next review point and identify events that could warrant an earlier review, such as substantial plan growth, an acquisition, a service decline, or a pricing change. A benchmark should remain useful after the renewal decision.

7. A conversation before the next renewal

Old Slip Capital is an independent, fee-based registered investment adviser established in New York in 1966. If your next recordkeeping renewal is approaching, we invite a conversation about the questions, cost information, and service priorities that can help make your review more useful.