When it comes to 401(k) fees, a new analysis gives credence to two known clichés: You can’t compare apples to oranges, and indeed, the rich are different.

Published by the authors of the “401k Averages Book,” the report “Are All $5,000,000 401(k) Plans Created Equal?"shows that the size of a 401(k) plan’s average participant account balance will influence the amount of fees they pay.

“401(k) fees for all $5,000,000 plans are not equal. There can be significant cost differences if the $5 million 401(k) plan has 100 participants as opposed to 500 participants,” says Joseph W. Valletta, co-author of the “401k Averages Book.” “That’s why it’s important to make apples to apples comparisons when benchmarking 401(k) fees.”

According to the report, the total bundled cost for a plan with 100 participants and an average account balance of $50,000, with a total $5 million in assets, is 1.34% as compared to 1.54% for a 500 participant plan with an average account balance of $10,000  — the same $5 million in assets.

So what’s a plan sponsor to do? Encourage low participation or low balances to keep fees low? Obviously not.

However, book co-author David W. Huntley says bluntly, “If you’re an advisor or plan sponsor and don’t know what your plan costs are, you’re asking for trouble,” citing the range between the high and low total plan costs on a $5 million plan with $10,000 average account balances as 1.06% to 2.07%. 

“There is a wide range of costs for 401(k) services and it is important to understand where your plan fits in that range,” Huntley says. “Plus, with new 401(k) fee disclosure and fee transparency initiatives under way, knowing how your plan compares to an average is valuable information.”

How aware are you of your 401(k) plan’s fees? Did you have any idea that fees to plans with the same total assets varied so widely? Sound off in the comments.

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