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

24 MIN READEditorial Policy

Key Takeaways

  • 401(k) plan costs can be broken into three general categories: startup costs, employer contributions (optional), and plan administration fees

  • We’ll review how plan costs can differ—and provide industry benchmarks for ​​401(k) service fees and other expenses

  • Comparing plan costs vs. industry averages can help you understand if you (or your employees) are overpaying

Think that 401(k) plans are an expensive benefit reserved exclusively for large businesses with deep pockets? Think again. While this may have been a reality in the past, many companies— including small businesses—aren’t aware that 401(k) plans can be affordable and attainable.

These days, 401(k) providers can use technology to cut costs. Additionally, there are tax credits that could help cover startup costs for new plans. Finally, offering a 401(k) can provide businesses with tax deductions, which helps reduce the overall costs of the plan.

Given the options available, it’s a good idea to examine if a 401(k) plan might now be an option for your business.

See how much your new 401(k) plan really costs

Employers may be eligible to receive tax credits up to $16,500 for starting a new 401(k) plan with auto-enroll.

Calculate Your Plan Costs >

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Small business 401(k) plan costs for employers

The costs associated with launching and maintaining a 401(k) plan for your small business, can be broken into three general categories:

  1. Startup costs

  2. Employer contributions, such as a match or profit-sharing (optional)

  3. Plan administration fees & expenses

Below, we review each type of plan cost in more detail.

1. 401(k) startup costs

There are generally initial costs to establish a 401(k) plan, which cover:

  • Setting up and administering your plan

  • Educating your employees about your plan

For example, set-up fees generally cover the plan design and implementation phases essential to kickstart a new plan. You can expect to pay a one-time startup fee between $500 to $2,000. However, there are some financial breaks small businesses can receive for starting a 401(k) plan. To encourage businesses to provide a workplace retirement savings plan—or to improve an existing one—legislators included two tax credits in the SECURE Act:

  1. The SECURE Act expanded the maximum tax credit for startup costs, increasing them from $500 to $5,000 per year, for the plan’s first three years. SECURE Act 2.0 increased existing tax credits to 100% of plan start-up costs (up from 50%), capped annually at $5,000 per employer (which remains unchanged) for each of the first three years. That could mean a total of $15,000. Eligible businesses with 51 to 100 employees are subject to original SECURE Act tax credits equal to 50% of administrative costs, capped annually at $5,000 per employer for three years.

  2. The SECURE Act also created a new tax credit of up to $500 per year, for three years, to cover startup costs for new 401(k) and SIMPLE IRA plans that include automatic enrollment.

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

In employer-sponsored retirement plans, contributions come from three primary sources: employee elective deferral contributions, employer matching contributions, or an employer profit-sharing contribution. Both employer match and profit-sharing contributions are optional. 

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Employer match

Employers can opt to match a portion of their employee’s deferral contributions. Employer matches are entirely optional (unless part of a safe harbor plan design) and businesses can choose to:

  • Match deferral contributions dollar for dollar,

  • Match deferral contributions 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

How much you provide is up to you—but most companies offer a match. In fact, 75% of all Human Interest plans offer an employer match as of January 2022. Of all Human Interest plans, 31% of plans offer a single-tier match formula (e.g., $1.00 per dollar on the first 4% of pay), while 15% of plans offer a multi-tier match formula (e.g., $1.00 per dollar on the first 3% of pay; $0.50 per dollar on the next 2% of pay)¹.

Offering a match plan design feature may help you find and keep good employees. Not only can an employer match help you stay competitive in your recruitment and retention efforts, but it may also provide tax advantages. Your contributions may be deducted from your employer federal income tax returns (as long as they don’t exceed a specific amount), and can assist in raising your participant enrollment and average deferral rates.

Second-guessing if you can afford an employer match? It’s a big decision. However, offering a 401(k) with a match may be less expensive than you think. Plus, there are numerous ways to structure a match. Working to select an employer match formula that works for you can help bolster your company’s recruitment and retention efforts, without eating into your company’s bottom line. 

Click to estimate how much a 401(k) match could cost your business.

Employer profit-sharing contributions

Employers can also include a profit-sharing contribution as part of plan design. Eligible employees don't have to defer in order to receive a profit-sharing contribution. Instead, they may be subject to certain annual allocation requirements as stated in the plan document. Profit-sharing contributions can be designed as discretionary, meaning that businesses don’t have to commit to certain dollar amounts and are capable of changing this amount. This can be helpful during volatile years for employers with cash flow issues.

Profit-sharing contributions are tax deductible for employers, up to certain limits, and can help lower a company’s taxes. This opportunity to take tax deductions can be a perk for growing companies and can be used to reduce the company’s income. Profit-sharing plans can also enable companies to contribute more to an employee’s retirement plan account. 

Profit-sharing plans can be set up as a stand-alone plan if you don’t want to offer your employees the option to defer from their paychecks. 

Learn how a profit-sharing plan differs from a 401(k) plan.

3. 401(k) plan administration expenses

401(k) service providers charge administrative costs for managing a 401(k) plan. This extensive category covers the day-to-day operations of a plan, essential administrative services, and other costs. According to the Department of Labor (DOL), plan fees can be broken out into three categories:

  1. ​​Plan administration fees (typically paid by employers): The costs associated with accounting, recordkeeping (year-end compliance testing, IRS paperwork preparation, and filing), and day-to-day operation of a plan (ongoing operation of plan, conducting trades, customer service, and account management).

  2. Investment fees (typically paid by employees): The expenses associated with managing plan investments, these fees are generally charged as a percentage of fund assets.¹

  3. Individual service fees (typically paid by employees): Some providers charge service fees for taking advantage of specific plan features (loans, hardship withdrawals, and more).

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Understanding the true cost of 401(k) administration costs and expenses

It's difficult to get accurate ranges on a 401(k) plan’s average cost because plan costs can vary widely. For example, plans with less than $1 million in assets may cost $5,000-$10,000 per year: an initial startup fee of $500-$3,000, quarterly per-participant charges of $15-$40, and $800-$1,000 in administrative fees.²

Employees generally pay most 401(k) fees related to investing. Depending on plan design, employers may cover 401(k) administration costs—or, pass them to employees as flat fees or as a percentage of assets in the plan.

401(k) processing and ongoing fees

In addition to the standard employer costs, there may be transactional fees that employers (or their employees) have to pay. Also known as individual service fees (as mentioned above), 401(k) processing and ongoing fees are charged to companies and/or plan participants when specific actions or events occur. Below are a few of these fees.²

401(k) transaction fees are just a few of the costs passed along to employers. However, at Human Interest, you won’t have to worry about tracking and calculating costs. Why? Because we never charge transaction fees. Eliminating all 401(k) processing fees helped us take our affordable pricing model one step further and helped us stay true to our commitment to the financial wellness of our customers and their employees

Zero 401(k) transaction fees

For illustrative purposes only. Internal benchmarking data was collected in Q3 2020³. See below for more information.

Who is responsible for monitoring 401(k) costs?

The plan’s fiduciaries must monitor fees to ensure they’re reasonable. The Employee Retirement Income Security Act of 1974 (ERISA) includes a set of standards or "duties"—often referred to as “ERISA fiduciary duties”—which include running the plan in the interest of participants and beneficiaries, and for the exclusive purpose of providing benefits and paying plan expenses. 

All 401(k) plans must have a “Named Fiduciary” who has ultimate authority over the plan’s fiduciary decisions. Plan documents will identify (or outline a procedure to identify) the Named Fiduciary. 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). 

The costs of staying in compliance

Annual compliance testing

From a high level, nondiscrimination testing (NDT) measures a plan’s participation levels to ensure it isn’t unfairly favoring highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). Plans must pass a series of annual tests, including: 

  • Actual deferral percentage (ADP) test: Compares the average percentage of salary that HCEs defer vs. the average percentage 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: this determination assesses whether key employees (defined as an officer whose annual compensation is $220,000 or more; any employee who owns more than 1% of the company and earns more than $150,000; or who owns more than 5% of the company) hold more than 60% of total plan assets. A top-heavy plan can be subject to certain minimum funding requirements.

Failing nondiscrimination testing can be costly, due to the administrative time involved in keeping a plan compliant (or the time spent reversing issues to bring a plan into compliance). Despite this, resolving failed tests can be easy. By taking correct measures, businesses can avoid long-term consequences and penalties. To help your business ensure it doesn’t fail NDT, there are important compliance deadlines to consider.

Potentially avoid ADP and ACP tests with a safe harbor design

In most cases, using a safe harbor plan design exempts employers from the ADP and ACP tests. It’s important to weigh the pros and cons of a safe harbor design. A safe harbor plan design includes a mandatory, tax-deductible, employer contribution to a 401(k) plan, which helps businesses automatically pass testing and may satisfy top-heavy testing requirements. 

However, safe harbor contributions can be relatively expensive. Safe harbor contributions must be made for the full plan year in most cases and the plan must adhere to specific deadlines. If you decide to offer a safe harbor contribution, you may be limited to starting it at a specific time.

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Additional benefits of a safe harbor design

If you have owners or other highly compensated employees (HCEs) who are interested in contributing deferrals up to the annual limit, it’s worth considering a safe harbor 401(k) plan. Safe harbor plans are exempt from ADP testing, meaning refunds to HCEs will never occur as long as the plan maintains its safe harbor status. Below are a few circumstances when safe harbor plans may be advantageous to your company:

  • Your company’s HCEs want to be able to contribute more to the 401(k) plan without risking non-discrimination testing failure.

  • You will have 60% of more of the plan assets allocated to key employees (also known as “top-heavy” plans).

  • Your employees may benefit from an employer match guaranteed by safe harbor plans, which may help boost participation in plans that may otherwise have low participation rates

Read more: Safe harbor 401(k) plans explained

What is a 401(k) audit?

A 401(k) plan audit is a review of your company's qualified plan to ensure it’s within guidelines and regulations set by the IRS and the Department of Labor. The audit helps ensure an employer is running its plan correctly and that the information provided in a plan’s Form 5500 and financial statements is accurate. In most cases, plans with more than 100 eligible participants (including those terminated with a balance) are required to undergo an annual audit and to file the completed financial statements with their annual Form 5500 filing. 

Audits review documents related to a 401(k) plan to determine whether the plan complies with IRS and DOL rules. Audits must be performed by a qualified public accountant and can cost anywhere from $8,000 - $12,000. By completing a 401(k) audit, companies receive communications that can be used to remedy areas of noncompliance and improve processes.

How do I know if my employees are getting a fair deal?

Ultimately, the best way to know your plan fees are reasonable and your employees are being treated fairly is to review your whole plan. Benchmarking can help you get a read on your plan fees. Comparing plan costs against industry averages can help you uncover if your plan or plan participants are overpaying. 

Be aware of investment-related expenses

Average fund expense ratios have been in decline for two decades. In fact, over one decade (between 1999 and 2019), the average (asset-weighted) annual fund fee dropped from 0.87% to 0.45%. To stay competitive, it’s important to ensure you keep investment costs low. Every bit counts; even a 1% increase can result in significant losses for an employee’s retirement nest egg over the course of their employment.

Benefits of offering your employees a 401(k)

Improved employee retainment and morale

Did you know that retirement plans are the most-wanted benefit after health insurance? Plus, adding a 401(k) to your benefits package is a cost-effective way to compete for great talent and reduce the turnover of current employees. Because a majority of employers provide a match (86% of small businesses and 95% of large businesses, according to the Plan Sponsor Council of America), providing a match can help you remain competitive.

401(k) plans offer small business employers additional tax credits

In addition to the SECURE Act tax credits outlined above, some expenses may also qualify as deductible business expenses. According to section 404 of the IRC, employer contributions are deductible if they don’t exceed set limitations. In 2024, this limit is 25% of all eligible employees’ compensation (eligible compensation is limited to $345,000 per participant); while combined employer and employee contributions are limited to the lesser of $69,000 or 100% of an employee’s annual compensation.

Employers can contribute to their own retirement savings, too!

Of course, offering a 401(k) plan means contributing to your own retirement savings as well. Basic employee deferral limits for 401(k) plans are $23,000 ($30,500 for those aged 50 and over) in 2024.

Choosing the right 401(k) for your business

Whether you’re a small business owner or an HR director for a company with hundreds of employees, you deserve a cost-effective plan that makes a 401(k) a reality for your organization. Keep in mind that a plan may have higher or lower costs based on the specific needs of your business (i.e., number of participants, turnover rates, average balances, your in-house tax and/or accounting capabilities, etc.).

Reducing 401(k) set-up costs and administration fees with an integrated payroll system

Payroll is at the root of 401(k) plan administration. Employee contributions must be deducted into individual 401(k) accounts each payroll cycle, which involves: 

  • Tracking employee eligibility

  • Enrolling and communicating with employees

  • Keeping records of employee and employer contributions

  • Calculating and depositing employee contributions

  • Reporting payroll data each pay period

Sound like a lot of work? It can be. Let’s say you’re a company that hovers around 100 employees and experiences high turnover rates. Maintaining a 401(k) plan requires plan administrators to update, add, and amend payroll journals every single pay period. This can mean hours of manual work—unless you have payroll integration.

Through automated administration and compliance monitoring, payroll integration can help small businesses save time and money. Integrating your payroll and 401(k) can automate the administrative process by connecting employee data to benefit providers or recordkeeping systems. 

While a traditional 401(k) provider might require paper payroll documents to get a plan up and running, Human Interest generally pulls data directly from payroll systems—which helps reduce set up costs and administration fees. Our 401(k) platform provides a simple, streamlined administrative experience, which helps keep costs low. Visit our pricing page to learn more.

401(k) cost FAQs

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

As stated above, small businesses with less than $1 million in assets can expect to spend in the range of $5,000-$10,000 per year on 401(k) costs, which comes out to between $400-$900 per month.² However, the cost varies on the type of plan, the matching amount, the fees, the number of employees, the type of mutual funds selected, and more.

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

When you compare the relatively low cost of offering 401(k) plans to your employees with the tax benefits and improvements in talent acquisition and employee retention, providing 401(k) plans to your employees can be absolutely worth it. According to a 2022 Human Interest survey, a retirement plan is the second most wanted benefit after health insurance. 

How high is too high for 401(k) fees?

When it comes to management fees, participant fees, transaction fees, and other potential 401(k) fees, even a small percentage can add up over time. 401(k) benchmarking can help you get a read on what similar plans and offerings are charging. Comparing plan fees against industry averages can help you better understand if your plan is designed to empower your employees—or if you need to update it. 

At Human Interest, we offer transparent, fair pricing for employers and their employees. Our pricing is clearly listed on our website and we never charge transaction fees. While other providers may charge more than 20 fees to plan administrators and participants, amending your plan or accessing your money is free at Human Interest.

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Trenton Reed is the Manager of Content Strategy at Human Interest. He has nearly a decade of experience writing for Fortune 500 and SMB companies across finance, technology, and other verticals.

Related Articles



As of 1/3/22, according to Human Interest data, 2022.


Data, including ranges provided for the Individual and Plan Fees table, based on Human Interest competitive analysis conducted between 2021 and 2022 using 408(b)(2) fee disclosures provided from 554 plans covering various plan service providers. Actual fee amounts and types of fees charged by any provider will vary. Not all providers will charge all fees listed. Information is subject to change.


Data assembled using similar methods as above, using 408(b)(2) disclosure data from Q3 2020. Actual fee amounts and types of fees charged by any provider will vary. Not all providers will charge all fees listed. Information is subject to change.