Evaluating Plan Proposals: Look Beyond the Total Cost

For retirement plan sponsors, fee benchmarking can seem deceptively simple. Put provider A next to provider B, compare the numbers, and identify the lower-cost option.

In reality, it rarely works that way.

One of the biggest obstacles in evaluating plan fees is that providers often package services differently, making a true apples-to-apples comparison challenging. A bundled provider may quote one all-in fee covering recordkeeping, investments, third-party administration (TPA), advisory support, and participant education. Another provider may break out those services separately. Still another may include certain features in its base price that competitors treat as optional add-ons.

The question is not just whether a fee is reasonable, but whether a fair comparison can be made at all. To benchmark effectively, plan sponsors need to normalize for any differences and assess both total cost and total value.

The apples-to-apples problem

At the heart of the challenge is comparability.

Sponsors cannot meaningfully compare one provider’s bundled fee with another provider’s unbundled pricing, unless they first determine what services are actually being delivered in each arrangement. If one proposal includes robust participant education or financial wellness support and another does not, the less expensive option may not be the better value.

This is why fee benchmarking should begin with a common service specification. Before evaluating proposals, sponsors should define the baseline services they want measured across all providers. That helps create a consistent framework to hopefully ensure the comparison is based on like services — not just like labels.

Start with total plan cost

Once the baseline services are clear, the analysis should move beyond individual fee components.

A fair comparison requires aggregating all plan-related fees, including recordkeeping, investment, advisory, TPA, managed account, and other ancillary services into a single, total-cost figure. Sponsors should then view total cost in several ways:

• total annual dollars;
• cost per participant; and
• cost as a percentage of plan assets, expressed in basis points.

Each of these lenses can reveal something different. For example, a plan may look efficient on an absolute asset basis but expensive on a relative per-participant basis. Depending on the fee structure, this could be exacerbated when participant counts rise faster than assets. Evaluating fees from multiple angles gives sponsors a more complete understanding of plan economics.

Account for differences in service levels

Benchmarking also requires adjusting for service differences.

If providers are not offering the same level of support, the analysis should reflect that. For example, if one provider includes financial wellness programming and another does not, sponsors should consider what it would cost to add comparable services elsewhere. Without that adjustment, the lower-cost provider may appear more competitive than it really is.

This is an important discipline for fiduciaries. Fee reviews can become distorted when sponsors compare price points without fully accounting for what those prices include.

Today’s fee is not the whole story

Sponsors also should look beyond the current fee schedule and consider fee trajectory over time.

A proposal that appears competitive today may look very different over a three- to five-year horizon, especially as plan assets and participant counts change. Projecting fees under different growth scenarios can help sponsors understand whether a provider’s pricing remains attractive as the plan evolves.

That forward-looking analysis can be especially useful when comparing providers with different pricing structures, such as asset-based fees versus participant-based fees.

Investment costs should be evaluated in context

When investment menus are part of the comparison, expense ratios alone do not tell the full story.

Since participant outcomes depend on what remains after costs are paid, sponsors should assess net-of-fee investment performance. In some cases, a lineup with slightly higher fees may deliver stronger net performance than a lower-cost alternative. That does not diminish the importance of cost control, but it does reinforce that price should not be evaluated in isolation.

Bundled, partially unbundled, and fully unbundled

The structure of the service model itself is another key variable.

In a fully bundled arrangement, one provider delivers recordkeeping, investments, TPA services, and often participant education, generally for a single all-in fee.

In a partially unbundled model, recordkeeping and investments may be handled by one firm, while advisory and TPA services are provided by separate organizations.

In a fully unbundled structure, each service is performed by a separate specialized provider.

Each model comes with trade-offs. Bundled arrangements may offer lower overall costs through economies of scale, but they can limit investment flexibility and introduce potential conflicts of interest. Unbundled arrangements can provide greater customization and transparency, but they also may require more fiduciary oversight and more active coordination among providers.

The key point is that no model should be judged on price alone. The more useful question is whether the structure aligns with the plan’s needs, governance capacity, and participant objectives.

A better benchmark

For fiduciaries, fair fee benchmarking is not about identifying the lowest quoted number. It is about understanding what is included, what is excluded, and how the arrangement is likely to perform over time.

That means comparing total plan cost, adjusting for differences in service, considering future pricing dynamics, and evaluating overall value.

In other words, the most effective fee review is not a line-item exercise. It is a full-plan analysis.

All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.