Price Isn’t Everything: Why Fee Compression Isn’t the Whole Story

Apr 30, 2026

You don’t choose a contractor for your home based solely on who gives you the lowest quote, do you? Cost matters, but it’s only one part of the equation. True value is more nuanced than a single number.

Lower-priced options can come with hidden trade-offs — whether it’s lower-quality materials, rushed workmanship, or limited long-term durability. In many cases, those initial savings can lead to additional costs down the line, from repairs to rework, ultimately undermining the very goal of spending less.

If you’re a retirement plan sponsor or fiduciary, shopping for providers and services can present a similar conundrum. Over the past decade, there’s been an industry-wide emphasis on reducing fees associated with service providers — a trend driven in part by an uptick in lawsuits over excessive fees.

There’s a lot more to creating a value-laden plan than simply minimizing fees. While excessive plan expenses can constitute a breach of fiduciary duty, so, too, can picking the lowest-cost providers without much thought.

To create a plan that’s truly valuable to beneficiaries, a sponsor needs to consider what they’re potentially giving up in exchange for those lower fees: support, education, plan design guidance, and more — all services often worth paying for.

Fiduciary responsibility goes beyond cost

It’s easy to see why fees get so much focus. For years, there’s been an increase in lawsuits related to fee disclosure rules and the Employee Retirement Income Security Act (ERISA), along with a surge in media attention on 401(k) costs. However, when fees become the primary — or only — factor in selecting plan providers, the process will eventually backfire.

As fiduciaries, retirement plan sponsors are held to a high standard. In fact, lowering costs is just one piece of their overall obligations, which also include:

Acting solely in the best interest of participants and beneficiaries
Prudence: making decisions with care, skill, and diligence
Following plan documents (as long as they align with ERISA)
Diversifying investments appropriately

Choosing a provider mainly because they’re inexpensive — without evaluating quality or services — can also fall short of fiduciary standards.

Prudence is about process

One of the most important fiduciary duties is prudence, which centers on how decisions are made — not just the outcome. A prudent process typically includes:

Evaluating multiple providers
Comparing services, capabilities, and pricing
Documenting the rationale behind decisions

This kind of due diligence allows fiduciaries to demonstrate that selections were thoughtful and well-informed — not arbitrary or purely cost-driven — thereby building trust with beneficiaries.

Not all plan services should be evaluated the same way

When reviewing fees, it’s important to recognize that not every component of a retirement plan should be judged by price alone. Typically, 401(k) plans are comprised of the following services:

Recordkeeping — tracking contributions, balances, and participant activity.
Custody — holding plan assets and executing trades.
Investment advice — selecting investments, monitoring performance, and potentially guiding participant decisions.
Third-Party Administration (TPA) — plan design, compliance testing, and required filings.

Plan sponsors can then break these down — along with any additional services associated with their plan — into “commodity” and “value-added” services.

Commodities are services that are mostly interchangeable, assuming a reasonable level of competence, such as recordkeeping and custody. Cost is a straightforward benchmark for these services. Finding a reliable provider at a lower cost can directly benefit participants.

With value-added services, the gap between providers tends to be more significant, and thus making price a deeper consideration. Investment advice and TPA fall into this category. Think about it: the right expertise can improve plan design, enhance participant outcomes, reduce administrative strain, and limit fiduciary risk. The wrong provider can do the opposite. Because of that, it sometimes makes sense to pay more for higher-quality support in these areas — especially when the added cost is outweighed by the value delivered.

Of course, every plan is different — based on aspects like size and participant preferences — which makes the conversation about commodity versus value-added unique to each firm.

How to review plan fees

An effective review goes beyond simply scanning for lower numbers. It requires a structured approach that evaluates both cost and value, while keeping documentation and consistency front and center.

Here are a few best practices for how to meaningfully approach a review of plan fees:

Start with a clear inventory.
- Identify all direct and indirect costs, including recordkeeping, investment management, advisory, and administrative fees
- Understand how each fee is charged (asset-based, per participant, or flat)
- Look for revenue sharing or other less-visible cost structures

Evaluate fees in context, not isolation.
- Compare costs relative to the services being delivered
- Consider plan size, complexity, and participant needs
- Assess whether outcomes (participant engagement, investment performance, service quality) justify the fees

Identify risks and hidden inefficiencies.
- Watch for fee structures that may disadvantage certain participant groups
- Uncover outdated pricing arrangements or legacy share classes
- Ensure there are no conflicts of interest or misaligned incentives
- Determine whether plan design changes could create inefficiencies
- Explore whether your current providers are delivering competitive value

Document the process thoroughly.
- Maintain records of reviews, comparisons, and decisions made
- Clearly outline the rationale behind any changes or the decision to stay the course
- Ensure documentation supports fiduciary oversight and compliance

A thoughtful fee review process doesn’t just help control costs — it strengthens your plan’s overall effectiveness and helps ensure you’re acting in the best interest of participants.

A well-run plan isn’t defined by how little it costs, but by how effectively it serves its participants. IMA Retirement helps sponsors move beyond surface-level decisions about costs and value when selecting plan providers. It’s time to start reviewing your plan’s fees with intent.

We’re here to help. Schedule a time to discuss your plan management needs with us.

Download Our Fee & Value Checklist

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