How much does a 401(k) cost small business employers?

What small business owners should know about 401(k) costs

Many small business owners assume that 401(k) plans are too expensive or complicated to offer. Modern technology and federal incentives have made retirement plans more accessible—and as a result, employers can more easily offer meaningful retirement benefits to employees.

Today, small businesses can choose from flexible plan options and use tax credits to reduce or eliminate specific startup costs. Offering a 401(k) plan can also create potential tax deductions, helping offset overall plan expenses while providing a valuable benefit to employees.

Are you overpaying in 401(k) plan fees?

Explore benchmarking your plan fees and how to calculate what your plan really costs.

What are the main costs of a small business 401(k)?

The costs of launching and maintaining a 401(k) program generally fall into three categories:

1. Startup costs
2. Employer contributions (optional)
3. Plan administration fees and expenses

Understanding each cost category helps employers plan and choose the structure that best fits their business.

1. 401(k) startup costs

Startup costs typically include plan setup, documentation, and employee education. According to some sources, setup fees range from around $500 to $3,000. However, the SECURE Act and SECURE Act 2.0 provide tax credits to help offset these expenses:

• The startup-cost tax credit can cover 100% of qualified startup costs, up to $5,000 per year for up to three years, for eligible employers with 50 or fewer employees.
• An additional tax credit of $500 per year may be available for up to three years for adopting an automatic-enrollment feature.
• An additional tax credit under SECURE 2.0 can apply to employer contributions (match or profit sharing), offering up to $1,000 per employee for certain years and under specific conditions.

To qualify, an employer generally must have 100 or fewer employees who earned at least $5,000 in the previous year and at least one non-highly compensated employee (NHCE) participating in the plan. The business also cannot have maintained a similar plan covering the same employees in the past three tax years.

The startup-cost credit may be calculated as $250 multiplied by the number of NHCEs eligible to participate, capped at $5,000. For employers with 51–100 employees, the credit covers 50% of eligible costs using the same calculation. 

Employers can also claim the credit for plan contributions made to defined contribution plans, such as 401(k)s or SIMPLE IRAs, although the credit amount decreases gradually over a five-year period. Businesses can claim the credit by filing IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs.

These combined credits may reduce or even eliminate a plan’s initial cost.

2. Optional 401(k) costs: Employer match and profit-sharing

Employer contributions are entirely optional, whether through profit sharing or as a match (unless part of a safe harbor plan design), but can also provide valuable tax deductions, helping offset plan costs while demonstrating a company’s investment in its employees’ long-term financial well-being.

• Employer match: Businesses can match deferral contributions dollar for dollar, up to a specific percentage of an employee’s compensation, or establish a cap to be used in addition to any percentage of deferral contributions being matched
• Profit sharing: Employers can contribute to eligible employees’ accounts regardless of whether they make their own deferrals. Contributions are discretionary, allowing businesses to adjust amounts each year based on company performance or cash flow. These contributions are tax-deductible up to certain limits and can also be offered as a standalone plan for employers who choose not to include employee deferrals.

Contribution options provide employers with the flexibility to design a plan that aligns with their goals and budget. Businesses can choose a structure that encourages participation and manages costs effectively, while also enhancing overall employee engagement and retention.

3. 401(k) administrative fees and expenses

401(k) administration involves recordkeeping, testing, filings, and ongoing operations. According to the Department of Labor (DOL), these costs fall into three categories:

• Plan administration fees (typically paid by employers): Cover compliance testing, accounting, recordkeeping, and general plan operations.
• Investment fees (typically paid by employees): Often charged as a percentage of fund assets to manage plan investments.
• Service or transaction fees (typically paid by employees and employers): Include costs for activities and transactions such as loans or hardship withdrawals.

By reviewing each category of plan expenses, employers can better gauge the true cost of their 401(k) and identify opportunities to reduce unnecessary fees. Regular reviews also help ensure plans remain compliant and aligned with business needs.

Curious how much of a match you should provide? Try our free employer match calculator.

What to know about 401(k) administration costs and expenses

It can be challenging to pinpoint an exact average cost for a 401(k) plan, as expenses vary based on factors like plan size, features, and the provider. In many cases, employees cover most investment-related fees, while employers are responsible for administrative costs. Depending on the provider, however, some of these expenses may be shared or structured as flat fees or a percentage of plan assets.

401(k) transaction fees

Beyond standard employer costs, some providers charge additional fees for certain plan activities or services. Often referred to as individual service fees, these may apply when specific administrative actions or participant requests occur, such as filings, plan updates, or provider changes.

Common examples include:

• Form 5500 preparation: This required annual report provides the IRS and DOL with details about a plan’s financials and operations. Most 401(k) plans must file Form 5500 each year, typically through the plan’s recordkeeper or administrator.
• Deconversion fee: Some providers charge a fee if an employer decides to move their plan to another service provider.
• Plan restatement fee: When retirement plan laws change, plan documents must be updated to remain compliant. Restatements typically occur every six years and reflect the latest IRS and DOL regulations.

Standard 401(k) service fees, such as Form 5500 preparation, deconversion, and plan restatement costs, can add anywhere from a few hundred to over a thousand dollars to a plan’s annual expenses.

To help employers understand these costs, the 408(b)(2) disclosure requires recordkeepers to share a clear breakdown of plan fees at least every 14 months. Reviewing these disclosures regularly allows businesses to benchmark plan costs and ensure their fees remain fair and competitive.

Who is responsible for monitoring 401(k) costs

Under the Employee Retirement Income Security Act of 1974 (ERISA), plan fiduciaries are responsible for monitoring 401(k) fees and ensuring that all plan expenses remain reasonable. These fiduciary duties require plan sponsors to act solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits and paying legitimate plan expenses.

All 401(k) plans must have a “Named Fiduciary” who has ultimate authority over the plan’s fiduciary decisions. If a plan sponsor wishes to share its fiduciary responsibility, it can choose to hire a service provider to perform several administrative functions, including those that fall under Internal Revenue Code sections 3(16), 3(21), and 3(38). 

How compliance affects 401(k) costs for small businesses

Under ERISA, fiduciaries are required to ensure plan fees remain reasonable. Regular compliance testing helps confirm plan accuracy and can also determine when a formal audit is required.

Annual testing

Every plan must undergo nondiscrimination testing (NDT) to confirm that highly compensated employees (HCEs) don’t benefit disproportionately compared to non-highly compensated employees (NHCEs). 

Common tests include:

• Actual deferral percentage (ADP) test: Compares the average percentage of salary that HCEs defer vs. the average rate that NHCEs defer.
• Actual contribution percentage (ACP) test: Uses the same calculation method as the ADP, but includes the employer match and/or voluntary after-tax contributions.
• Top-heavy determination: Assess whether key employees hold more than 60% of total plan assets. A top-heavy plan can be subject to specific minimum funding requirements.

Employers that fail these tests may face administrative burdens and potential penalties, but timely corrections can prevent long-term issues. 

Potentially avoid ADP and ACP tests with a safe harbor design

Adopting a safe harbor plan design can automatically exempt a company from ADP and ACP testing. 

Additional benefits of a safe harbor design:

• Your company’s HCEs want to be able to contribute more to the 401(k) plan without risking nondiscrimination testing failure.
• You will have 60% or more of the plan assets allocated to key employees (also known as “top-heavy” plans).
• Your employees may benefit from employer contributions guaranteed by safe harbor plans, which can help boost participation in plans that might otherwise have low participation rates.

Keep in mind, safe harbor plans require a mandatory employer contribution and must be offered for a full plan year. However, while they may increase short-term costs, they can save time and reduce testing requirements for employers with a large number of key employees.

What small businesses should know about 401(k) audits

A 401(k) plan audit is a formal review of an employer’s retirement plan to verify that it complies with IRS and Department of Labor (DOL) regulations. The process helps confirm that the plan is being administered correctly and that financial reporting, including the annual Form 5500, is accurate and complete. 

Businesses concerned about the time and expense of annual 401(k) audits can partner with a modern retirement solution that offers innovative features such as Audit Relief®, which automates specific manual data tasks to assist independent auditors during their review. Plan sponsors maintain ultimate responsibility for ensuring plan data accuracy.

Plans with more than 100 eligible participants must complete an annual audit conducted by an independent qualified public accountant. The review helps identify compliance issues early, strengthen oversight, and maintain regulatory accuracy.

Why offering a 401(k) is worth it for small businesses

For many small businesses, offering a retirement plan supports employee retention and demonstrates a commitment to long-term financial well-being. Beyond regulatory requirements, a 401(k) can aid in retention. In fact, nearly a quarter of employees said they were considering leaving their jobs based on workplace benefits offerings, according to a Bank of America 2025 Workplace Benefits Report.

Contribution and deduction limits include:

• Employer contributions: Generally, tax-deductible up to 25% of the eligible employees’ total compensation for defined contribution plans.
• Combined limits: Total employee and employer contributions are capped at $71,000 (or 100% of compensation) in 2026.

Additionally, business owners can contribute to their own retirement savings. That means you can defer up to $24,500 annually in 2026, with eligible participants age 50+ able to contribute an additional $8,000. The IRS also allows a super catch-up contribution for those 60-63 years old of up to $11,250.

How to reduce 401(k) costs through payroll integration

Payroll data sits at the center of 401(k) administration. Without automation, HR or finance teams must manually track eligibility, update records, and calculate contributions each pay period. Integrating your payroll system with your 401(k) provider can dramatically reduce administrative time and compliance risk. 

At Human Interest, we believe small businesses deserve a cost-effective plan that can help make a 401(k) a reality. Our payroll integration feature allows contribution data to sync automatically, helping to:

• Lower administrative costs
• Reduce manual errors
• Support built-in compliance oversight

Automating these processes can reduce administrative workload and maintain consistent plan accuracy. By partnering with a technology-driven retirement platform like Human Interest, employers can streamline plan management and stay focused on scaling their business.

How to set up a 401(k)

Once you understand the costs associated with starting and maintaining a 401(k), the next step is setting one up. Employers can establish a plan on their own or work with a provider that integrates plan design, administration, and compliance.

1. Choose a plan type: Determine which plan best fits your business needs. Common options include a traditional 401(k), safe harbor, SIMPLE 401(k), or solo 401(k) for self-employed individuals.
2. Select a provider and recordkeeper: Compare retirement plan options based on fees, investment options, administrative tools, compliance support, and customer service. Selecting a platform with automated capabilities can help simplify ongoing plan management.
3. Create plan documents: Develop formal plan documents that define eligibility, contribution limits, and other plan design features in accordance with IRS and DOL regulations.
4. Notify and enroll employees: Employers must inform eligible employees about the plan’s features and provide them with the required materials, such as a summary plan description and annual notices.
5. Maintain the plan: After setup, work with your provider and recordkeeper to conduct annual testing, file Form 5500, and periodically review plan fees and investment options to ensure ongoing compliance.

At Human Interest, we deliver modern retirement solutions built to streamline plan management and strengthen compliance. Our technology empowers small businesses to offer accessible, automated 401(k) plans that help employees save for the future.

Learn how Human Interest can help your business with retirement plan administration. Get started today.

401(k) cost for small businesses FAQs

How much does a 401(k) cost per month for a small business?

The cost of offering a 401(k) varies based on factors such as plan design, number of employees, provider services, and employer contributions. Smaller businesses may find that modern technology and payroll integration can help make 401(k) administration more affordable and efficient.

Is a 401(k) plan worth it for a small business?

Many employers find that the benefits of a 401(k)—including tax benefits, employee retention, and employee engagement—may outweigh the costs of maintaining a plan. Retirement plans are also among the most requested workplace benefits after health insurance, according to the 2025 SHRM Employee Benefits Survey.

What’s considered too high for 401(k) fees?

Even small differences in plan fees can have a long-term impact on employee savings. Employers should regularly review their plan’s fee disclosures and compare them against industry benchmarks to ensure that costs remain reasonable and transparent.

How does Human Interest help small businesses manage 401(k) costs?

Human Interest offers transparent pricing, automated administration, and built-in compliance support to help employers manage 401(k) costs more effectively and reduce administrative workload.

This content has been prepared for informational purposes only, and should not be construed as tax, legal, or individualized investment advice. Human Interest Inc. does not provide tax, legal, or individualized investment advice. Consult an appropriate professional regarding your situation. The views expressed are subject to change. In the event third-party data and/or statistics are used, they have been obtained from sources believed to be reliable; however, we cannot guarantee their accuracy or completeness.