07.20.25 -- While reviewing a business owner's 401(k) recently, I noticed it still operated on a revenue-sharing model—once common, but now outdated. When the provider casually mentioned that fees could be lowered "if requested," it confirmed a larger trend: many plans are still running on autopilot, despite industry changes.
The retirement plan space has shifted significantly over the past few years. If your 401(k) was set up before 2018, it may rely on outdated fee structures that were once considered standard—but now look expensive and opaque.
Revenue Sharing
Revenue sharing was the norm for small business 401(k) plans for years. In these setups, mutual funds include embedded fees (like 12b-1 or sub-transfer agent fees) that pay service providers behind the scenes. That made plans look "free" to employers—but it masked the true cost. The downsides:
- Lack of transparency for both employers and employees
- Participants in higher-cost funds unknowingly pay more
- Difficult to analyze and monitor
- Increased fiduciary risk due to opaque compensation
According to Callan's Defined Contribution Trends Survey, revenue sharing was used in 67% of plans in 2012. By 2021, that number had dropped to just 17%.
Modern 401(k)s: Transparent, Streamlined, and Efficient
Today's best-in-class plans are designed for clarity and control. Key features:
- Flat fee structures instead of asset-based pricing
- Institutional-quality investments (index funds with 0.03%-0.08% expense ratios)
- Automated payroll integration, compliance, and participant communication
- 3(38) investment fiduciary and 3(16) plan administration services
Plan Design Has Evolved
Small businesses now have access to a range of smart, cost-effective plan options:
- Safe Harbor 401(k)s: Adopted by ~69% of small businesses to eliminate discrimination testing and allow owners to maximize contributions
- Tech-enabled providers: Firms like Guideline and Vestwell offer flat-fee pricing and integrated admin support
- Pooled Employer Plans (PEPs): Enabled by the SECURE Act in 2021, these let unrelated businesses join a shared plan with centralized admin and fiduciary oversight
- Modern features: Auto-enrollment, Roth contributions, and profit-sharing are now standard—even for small plans
When to Reevaluate Your Plan
Signs your current plan may need an update:
- Fees are not clearly disclosed or the plan appears "free"
- Investment options have expense ratios above 0.75%
- Pricing is asset-based instead of flat per participant
- Plan lacks features like Roth, auto-enroll, or profit sharing
- Owners regularly hit contribution limits due to testing
Fees Compound Too
A 1.5% all-in fee versus 0.5% can reduce a participant's retirement savings by more than 30% over 30 years, assuming 7% annual returns. That drag is even more significant for business owners who rely on their 401(k) to build wealth efficiently. Modern Safe Harbor plans often allow for maximum contributions with fewer compliance headaches, better employee engagement, and lower overall costs.
Tax Credits
Under the SECURE Act and SECURE 2.0, qualifying small businesses can receive:
- Up to $5,000 per year for 3 years to offset plan startup/admin costs
- An extra $500 per year for auto-enrollment
- Total available credits: up to $16,500
These incentives can make plan upgrades cost-neutral—or even cash-positive.
The 401(k) landscape has changed. If your plan still follows outdated structures, you may be overpaying and underserving both your employees and your own retirement goals. A quick review of your plan's fees, features, and fund lineup could uncover opportunities. I can help.