By Ary Rosenbaum
Every few months, I hear a plan sponsor brag, “Our provider said the 401(k) is free!” And every time, I have to resist the urge to reply, “So is lunch—if you’re on the menu.”
Let’s be clear: there’s no such thing as a free retirement plan. Somebody, somewhere, is footing the bill. If it’s not you, it’s your participants. The trick is figuring out where the money’s actually coming from—and whether it’s being disclosed in a way that would make a DOL auditor smile.
“Free” plans usually work like this: the recordkeeper builds their costs into fund expenses. So instead of writing a check, you’re just letting investment fees quietly chip away at employee returns. It’s like saying your accountant is free because their fee is buried in your tax refund. It sounds clever until you do the math.
I get it. Nobody likes writing checks, especially for something as unglamorous as plan administration. But let’s not confuse convenience with transparency. Paying a fair, visible fee for service isn’t a bad thing—it’s honest. And honesty is the cornerstone of fiduciary prudence.
Here’s the danger: the minute you call a plan “free,” you stop asking questions. You don’t compare costs, you don’t benchmark performance, and you don’t check what’s being deducted from participant accounts. Then, one day, you get a plaintiff’s attorney explaining the difference between “free” and “fiduciary breach.” Spoiler alert: that conversation isn’t free either.
So next time a provider pitches you a “no-cost” 401(k), smile politely and ask, “Who’s paying?” If they can’t answer that in one sentence, you’ve just learned the most expensive lesson in retirement plan management: free never is.
