If you're saving for retirement, chances are good you're using a 401(k) to do it. These workplace retirement accounts (or the equivalent versions for public sector workers) are the most common retirement plans in America and with good reason.
A 401(k) plan is easy to open — you might even be auto-enrolled when you start work — and easy to contribute to, since funds come right out of your paychecks. You get generous tax breaks, enjoy high contribution limits and might even get a generous employer match depending on the company you work for.
Unfortunately, while there is a lot to love about the good old 401(k), these accounts do have a bad reputation in one regard: Fees. Investment gurus such as Robert Kiyosaki of Rich Dad, Poor Dad fame have criticized these accounts for costing too much, and you'll commonly see warnings about hidden 401(k) fees in financial articles.
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Now an Abernathy-Daley report is reaffirming those fears, warning of 401(k) plans that are full of “underperforming, overpriced funds," or "clunker funds." Is this really a major concern that should cause you to rethink your 401(k) contributions? More important, is your 401(k) plan one of the more expensive options relative to the average?
Average 401(k) fund fees might be a bad deal
The Abernathy-Daley report examined more than 58,000 401(k) plans using fund performance data from 2015 to 2025. Based on a careful assessment of available investments within these plans, researchers found:
- More than 99% of all corporate 401(k) plans offered investors at least one fund that had a cheaper alternative that performed better over three, five and 10 years.
- More than 94% of corporate 401(k) plans had at least three funds that underperformed cheaper alternatives during these time periods.
- More than 85% had at least five underperforming funds.
- More than 70% had at least 10 of these clunker funds when narrowing the performance window to a three and five-year period.
- More than 40% had at least 10 underperforming funds over 10 years.
While researchers acknowledged that these underperformers might make up a small portion of the investments available, given that they found the average 401(k) plan has 28 funds, researchers also stated, "the investment fund options within a 401(k) must be foolproof to ensure that plan participants avoid mistakes that could lead to lost investment opportunities."
How big of a concern are these underperforming funds?
While the Abernathy-Daley report indicates that these "employees lose a significant amount in potential retirement savings due to excessive fees and underperformance," researchers don't indicate what that "significant amount" is, nor do they specify how many employees actually participated in these underperforming funds.
There is also plenty of evidence to counteract these concerns. When "Rich Dad" Robert Kiyosaki promoted the idea that a 401(k) was a "horrible" retirement plan, Morningstar researchers pushed back, pointing out that plan costs range from 0.27% for the largest plans with $1 billion in assets or greater to 1.26% for plans with assets under $1 million.
While that 1.26% number might be cause for concern, very few participants are in plans with assets valued at under $1 million — just 8% of all 401(k) participants in total.
Since most people in the U.S. work for larger companies (by definition, this is part of what makes them large), the vast majority of 401(k) plan participants are in plans where fees fall within that 0.27% range, and around 74% of all participants are in plans with average costs below 1.00%.
The 25th edition of the 401(k) Averages Book, released in 2025, also affirmed these numbers, reporting that a $5 million plan has average costs of 1.08% in total, including 0.37% in adviser compensation, while a $50 million plan has total average costs of 0.76% and 0.16% in average adviser fees, respectively.
Average 401(k) fund fees and administrative fees
If you're concerned you might be overpaying, here is what average 401(k) fees look like by plan size, based on Morningstar's analysis of BrightScope/ICI Data from March of 2024.
The study included "the 401(k) account’s expense ratio, considering both the asset-management fees collected by the fund companies and the administrative fee (along with any other charges) paid to the recordkeepers."
Plan Size | Average 401(k) Costs |
|---|---|
Under $1 million | 1.26% |
$1 million to $10 million | 1.01% |
$10 million to $50 million | 0.74% |
$50 million to $100 million | 0.58% |
$100 million to $250 million | 0.44% |
$250 million to $500 million | 0.40% |
$500 million to $1billion | 0.37% |
Greater than $1 billion | 0.27% |
However, there is widespread disparity among different plans. For example, the 401(K) Averages Book revealed that total plan costs for a $1 million plan with 100 participants ranged from 0.87% to 3.56%.
That's a very wide range with very serious consequences for your finances.
If you invested $10,000 per year over a 30-year career in a 401(k) with fees of 0.87% vs 3.56%, and you earned an 8% annualized rate of return, the account with the larger fee would be worth around $630,000 while the one with the smaller fee would be worth around $1.035 million.
Steps you can take
The lesson here is that it's up to plan participants to review the fees charged by their 401(k). While management and plan fees are largely out of the control of investors, fund fees are not.
Every 401(k) participant has the opportunity to review the funds in their plan and to compare fees and past performance.
A thorough review of the funds within the account can identify those underperformers, and simply opting out of investing in them can allow you to take advantage of all the benefits a 401(k) offers without losing out on returns you should be earning.
There are circumstances where 401(k)s are more expensive than they should be — especially if you work for a very small company that doesn't have the negotiating leverage to reduce plan expenses. In those circumstances, investing enough to earn your match before diverting retirement contributions to an IRA can be a viable strategy.
However, don't let frightening headlines about high fund fees influence your choices. Review plan expenses for yourself to ensure you're making the very best decision with your retirement dollars.
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