20+ years later, I still chuckle each time I hear a retelling of Zig Ziglar "cheap bicycle" story. When Zig’s son was six years old, he visited a bicycle shop to buy him a bike. After finding out that the price ($65) was more than he was willing to spend, he ventured to the local discount store, where he found a bike almost half the price ($35), and felt great about it. His son was only six, so this cheaper one would be fine.
Fast forward a few. months and the handlebars needed a replacement. Then a few months later it was the entire sprocket apparatus, including the brakes. Another few months or so the bearings in the front wheel gave up, and so on and so on…
Eventually, after $54 in repairs. Zig admitted defeat and bought the more expensive bicycle that his son rode for about 10 years without any repairs needed. $65 one-time versus $35 + $54 + even more ongoing costs? Price versus cost. It is a lesson worth remembering.
And so it is in the world of 401k plans and fee benchmarking. When it comes to 401k fee benchmarking, it is important to get to the truth behind the numbers. There is a tendency to focus on driving the cost as low as possible without considering what that really means.
Fee benchmarking has become a standard practice for 401(k) plan sponsors. It is often presented as a fiduciary safeguard—proof that fees are “reasonable” and therefore defensible. That is directionally correct. Under ERISA, the obligation is not to have the lowest fees, but to ensure fees are reasonable relative to the services provided.
However, not all benchmarking is created equal. In fact, many benchmarking reports provide a false sense of security.
The uncomfortable reality is that benchmarking can be engineered to tell almost any story.
Why Benchmarking Reports Can Be Misleading
There are at least three structural weaknesses in benchmarking reports that plan sponsors should take seriously.
First, many reports isolate fees without adequately describing the services behind them. This is a fundamental flaw. A plan that appears “expensive” may include materially higher-touch services—compliance oversight, participant education, fiduciary support—that justify the cost. Benchmarking fees in a vacuum is analytically incomplete and, frankly, fiduciary weak.
It is also important to know what services your plan needs. It is a balancing act but much like the cheap bicycle, a cheap 401k provider might not be the best fit for your plan.
Second, benchmarking datasets are often limited or skewed. There is no universal, transparent database of 401(k) fees. Even commonly used data sources, such as Form 5500 filings, can exclude key components like indirect compensation and revenue sharing, making comparisons inherently unreliable. Short-Form 5500s (designed for plans with the less than 80 - 120 participants and thus not subject to audit) are typically three pages long and say little about plan fees. One might describe a short-Form 5500 as sparse.
Third, inputs can be manipulated. Adjust plan size, participant count, service assumptions, or asset mix, and the “peer group” shifts. This creates wide latitude for advisors or providers to position a plan as competitive—even when it may not be.
In short, benchmarking is not an objective truth. It is a framework that depends heavily on assumptions.
What Prudent Plan Sponsors Should Do Instead
A defensible benchmarking process requires more rigor than simply accepting a report at face value.
Start with a simple principle: benchmark value, not just price.
Fees should always be evaluated in direct relation to services. This means clearly documenting what the plan is receiving—recordkeeping, fiduciary support, investment oversight, participant engagement—and assessing whether those services are necessary, effective, and competitively priced. A higher-cost plan with superior outcomes can be more defensible than a low-cost plan with poor service.
Think about how many hours in a year you spend talking with the 401k provider. Too much? Just right? Now think about how much you earn per hour. How much is your 401k provider really costing you?
Next, insist on transparency in data and methodology. Ask where the benchmark data comes from, how large the dataset is, and whether it reflects truly comparable plans. “Apples-to-apples” comparisons are critical, but rarely perfect in practice.
You should also control the variables. Do not allow a provider or advisor to define the peer group without scrutiny. Validate assumptions such as plan size, participant demographics, and service scope. Small changes here can materially alter conclusions.
Equally important, separate benchmarking from sales. Many benchmarking reports are produced as business development tools. That introduces an inherent bias. A more prudent approach is to either use an independent fiduciary or triangulate multiple sources—including RFPs—to validate results. Soliciting bids from multiple providers remains one of the most effective ways to establish true market pricing.
Finally, document the process—not just the outcome. Courts and regulators consistently focus on process. A well-documented, thoughtful review that considers fees, services, and alternatives is far more defensible than a single benchmarking report showing “below average” fees.
A More Useful Framing
The most effective plan sponsors reframe the question.
Instead of asking, “Are our fees below average?” they ask:
“Are we paying a reasonable fee for the outcomes and services our participants receive?”
That is the fiduciary standard.
The Parting Glass
Benchmarking is a valuable tool—but a poor substitute for judgment. Used correctly, it supports fiduciary prudence. Used carelessly, it creates complacency and legal risk.
A benchmarking report should be the starting point of the conversation, not the conclusion.