Everyone loves the word “free.” Especially plan sponsors. If a provider tells you the plan has no hard-dollar cost, it sounds like a win. No invoice, no budget conversation, no pushback from ownership.
But in the 401(k) world, “free” usually just means you’re not looking in the right place.
Plans get paid for one way or another. If you’re not writing a check, the participants are. That’s where revenue sharing and indirect compensation come in. Investment funds carry expense ratios that include payments back to recordkeepers and other service providers. It’s baked into the cost, buried in disclosures, and easy to ignore because it’s not hitting your P&L.
That doesn’t make it harmless.
The issue isn’t that revenue sharing exists—it’s that sponsors often don’t understand it. They don’t know how much is being collected, who is receiving it, or whether it’s reasonable for the services being provided. And that’s where fiduciary risk creeps in.
Because under Employee Retirement Income Security Act of 1974, it’s not about whether fees are direct or indirect. It’s about whether they’re reasonable and properly monitored. “I didn’t know” isn’t a defense.
There’s also a behavioral problem. When something feels free, it doesn’t get scrutinized. Providers know that. It’s easier to maintain pricing when it’s invisible.
The irony is that “free” plans are often the most expensive—just not in a way that’s obvious.
Good fiduciary practice isn’t about eliminating revenue sharing. It’s about understanding it, benchmarking it, and deciding whether it still makes sense.
Because in this business, nothing is actually free.
Someone is always paying.
