Your 401(k) may be quietly draining your team’s retirement savings, and fixing it is simpler than you think.
There is a good chance you are paying thousands of dollars in retirement plan fees right now and have no idea it is happening.
Not because you were careless. Not because you made a bad decision when you set the plan up. But because the system was never designed to make those fees visible. No invoice arrives. No line item appears in your bookkeeping. The money moves quietly out of your employees’ accounts, and out of yours, expressed only as a percentage so small it feels like nothing. Until you do the math.
That is what I walked away thinking about after my conversation with Paul Sipple, a forensic 401(k) consultant who has spent more than fifteen years helping business owners understand what is actually happening inside their retirement plans. Paul is not an advisor selling you a better product. He is an auditor who digs into the public tax records of retirement plans and shows business owners what they are paying, who is collecting it, and whether anyone is doing any work to earn it.
This conversation was one of those that shifted something for me. If you run a small firm and you have a retirement plan, or you are thinking about starting one, read this carefully.
Why Retirement Plan Fees Are a Real Problem for Small Firm Architects
Most of us think of the 401(k) as an administrative function. You set it up, you make sure payroll feeds into it, you offer it to your team as part of your benefits package. It is necessary, but it does not produce revenue, and there are only so many hours in the week. So it gets the minimum attention required.
That is exactly the environment where excessive fees quietly compound.
Here is what Paul explained, and what I found genuinely surprising. The conventional assumption is that larger firms bear the bigger burden. They have more assets, more participants, more complexity. But the excessive fee problem is concentrated in smaller plans. About 88 percent of all retirement plans have fewer than 100 participants. Those plans hold only about 14 percent of total assets, but they carry a disproportionately high per-participant cost. The per-person fees in a small firm plan can run $2,000 to $3,000 or more in unnecessary charges annually. Multiplied across even a handful of employees, over years or decades, that number becomes significant.
And unlike large firms, small firms rarely face lawsuits over excessive fees because the plan is too small to attract class action attorneys. So there is no external pressure forcing the issue. The only person who can fix it is you.
The Fee You Cannot See Is Still a Fee You Are Paying
The invisibility of these charges is not accidental. Fees are disclosed as percentages rather than dollars. A 1 percent fee sounds insignificant. It barely registers. But 1 percent of a $2 million plan balance is $20,000 a year. 1 percent of a $5 million balance is $50,000. And in a professional services firm, plan balances can grow quickly when partners and senior staff have been contributing for years.
The math gets worse when you consider who pays the most. Fees are charged proportionally to account balances. The person with the largest balance pays the largest share of the total fees. In most small firms, that is the owner. So not only are you paying fees you cannot see, you are almost certainly paying more of them than anyone else on your team, with non-tax-deductible dollars pulled directly from your retirement account.
Paul put it plainly: if those same fees were billed directly to the firm, you would get a tax deduction like any other business expense. You would see the invoice. You would ask questions about it. You would hold the service provider accountable for delivering something in return. But because the fees are invisible, that accountability never happens.
The Advisor Who May Not Be Working for You
One of the more striking things Paul shared was a story about a client who had been paying approximately $50,000 in advisory fees over five years. The business owner did not know he had an advisor. When he had his HR director call the administrator to find out who was collecting that money, they learned the advisor had been dead since 2014.
Fees had continued flowing to the advisory firm for years. No one had any incentive to stop it, least of all the firm collecting the money.
This is not an isolated case. It is an extreme version of a common pattern. Advisors in percentage-based fee arrangements get paid more as account balances grow, regardless of how much work they actually do. If your plan is invested in basic index funds that mirror the market, there is essentially nothing to monitor. The S&P 500 does not need to be benchmarked against itself. Yet the advisory fee keeps accruing, tied to assets rather than to service.
The question Paul asks every business owner is worth asking yourself: who is watching your advisor? If you do not know what your advisor is being paid, in actual dollars, you cannot answer that question.
What You Can Do Right Now
The good news is that this is fixable. It does not require a complete overhaul of your plan, and in many cases it does not even require switching providers. Here is where to start.
First, get a dollar accounting of your fees. Contact your record keeper, your plan administrator, and your advisor and ask for a full breakdown, in actual dollars, not percentages, of every fee paid from plan accounts in each of the last five years. Ask who received what, and for what services. If your plan has been with the same provider for years, the fee progression you see will likely be eye-opening.
Second, understand that these fees are negotiable. Most business owners never ask because they do not know the fees exist. But providers charging percentage-based fees can often be negotiated down. Before you consider switching platforms, try negotiating first. You may be able to improve your situation without the administrative complexity of moving your plan.
Third, consider whether your fees should be paid at the employer level rather than from participant accounts. When the firm pays the fees directly, you get a tax deduction. Your employees keep more money in their accounts. And you become far more attentive to cost, because now it shows up on an invoice you actually see. In a professional services firm with reasonable cash flow, the employer should almost always be paying plan fees rather than passing them to participants.
Fourth, if you are starting a plan or ready to reevaluate your provider, look for record keepers that charge fixed dollar fees rather than percentage-based fees, with open architecture fund platforms and no proprietary fund conflicts. Fixed dollar fees are straightforward. They do not grow with your assets. They reflect the actual administrative work being done.
The Retirement Plan as an Act of Stewardship
This is where I want to land, because I think the framing matters.
Your retirement plan is not just a benefits checkbox. It is one of the most concrete ways you express your values as a firm leader. Every dollar that flows unnecessarily to a fee is a dollar not compounding in your team member’s account. The Department of Labor has published data showing that a 1 percent fee charged to a 35-year-old with a $25,000 balance will cost that person roughly $64,000 by retirement, about 28 percent of what that balance would have grown to. That is not a rounding error. That is a real impact on a real person’s financial future.
Small firm architect business owners carry a particular kind of responsibility. Our teams are small. The people who work with us are not anonymous. We know their names, their families, their professional goals. Stewardship of a retirement plan is stewardship of their futures.
That does not mean you need to become an expert in ERISA law or spend hours analyzing fund lineups. It means you owe it to your people, and to yourself, to understand what is actually happening inside the plan you sponsor. Ask for the dollar figures. Review the fees. Hold the service providers accountable. Pay attention to the plan the way you pay attention to anything else in your business that matters.
The conversation with Paul gave me clarity I did not have before. I hope it does the same for you.
Take the Next Step
Listen to my full conversation with Paul Sipple on the EntreArchitect Podcast at https://entrearchitect.com/660. He goes deeper on specific providers, how to evaluate your current advisor, and how to think about fund selection for a small firm plan.
And if you are ready to build a better firm alongside other small firm entrepreneur architects who are doing the same work, join us at the EntreArchitect Network at https://entrearchitect.com.
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