Why Texas Businesses Are Overpaying Their 401(k) Provider

If you run a Texas business with a 401(k) plan, there’s a reasonable chance you’re paying more than you need to — sometimes two to three times more — for the same service a larger plan down the street gets at a fraction of the cost. This isn’t because your provider is dishonest. It’s because the small and mid-market 401(k) industry is quietly structured to make overpaying the default.

Here’s what’s going on, and what to do about it.

The structural problem: small plans lose leverage

The ICI’s annual The Economics of Providing 401(k) Plans study breaks out fees by plan size. The pattern is consistent year after year: plans with $1M in assets pay 2-3x more (as a percentage) than plans with $50M. Part of this is legitimate — there are fixed costs to administering a plan that don’t scale down neatly. But a large part of the gap is simply leverage. A Fortune 500 pension committee has a full-time staff and an independent consultant benchmarking costs annually. A 40-person HVAC company in Plano does not.

Providers know this. And they price accordingly.

”Free” 401(k) plans that aren’t

Walk into almost any small business in Texas and ask how much their 401(k) plan costs. The most common answer: “Nothing — the provider is free.” This is almost always wrong.

There are two places fees hide:

1. Revenue-sharing inside mutual funds. The plan’s investment menu is stocked with share classes that pay “12b-1” fees and other sub-transfer-agent payments back to the recordkeeper. You, the sponsor, see no invoice. Your employees absorb the cost through lower returns — often 40-80 basis points a year they never see.
2. Bundled provider arrangements. A “free” payroll-integrated plan typically makes its margin on proprietary funds, managed-account fees, or a per-head fee that’s quietly debited from participant accounts quarterly.

The DOL’s 408(b)(2) fee disclosure regulation — in place since 2012 — requires covered service providers to disclose all compensation in writing to plan fiduciaries. If you’ve never seen your 408(b)(2) disclosure, that’s your starting point. Request it in writing from every provider. By law, they must deliver it.

The Texas angle

Texas has some specific dynamics that amplify this:

• Heavy concentration in family-owned and PE-backed SMB manufacturing, services, and energy companies. These are exactly the plan sizes (roughly $2M–$30M in assets) where fee inefficiency is most common.
• Bundled payroll providers are dominant. Several large national payroll platforms heavily market integrated 401(k) plans to Texas SMBs, and those plans often carry all-in costs near or above 1.5% — 2-3x the market rate for a properly benchmarked plan of the same size.
• Relatively low penetration of independent ERISA 3(38) advisors. In larger metros like New York and Chicago, specialist fiduciary advisors are common. In much of Texas, the “advisor” on the plan is often a generalist who sold it to the owner through a personal relationship and hasn’t benchmarked it since.

None of this makes anyone a villain. But it does mean the default outcome, left alone, is overpayment.

What a properly benchmarked plan looks like

As a rough guide based on ICI data and our own Form 5500 reviews of Texas plans:

Plan size	Reasonable all-in fee range
$1M–$5M	0.85%–1.25%
$5M–$20M	0.55%–0.90%
$20M–$50M	0.40%–0.65%
$50M+	0.25%–0.50%

“All-in” means admin + recordkeeping + investment management + advisor, expressed as a percentage of assets. If you’re materially above these ranges, a fee benchmarking study is almost certainly worth your time.

Three specific things you can do this month

1. Pull your own Form 5500

Go to EFAST2 (the DOL’s filing search tool) and download your plan’s most recent Form 5500. You’re looking at Schedule H (for plans of 100+ participants) or Schedule I / the SF form for smaller plans. Scroll to the expenses section. Add up all fees. Divide by total plan assets.

2. Request your 408(b)(2) disclosure in writing

Email your recordkeeper and your plan advisor with this exact request: “Please send me the current 408(b)(2) covered service provider disclosure for our plan, including all direct and indirect compensation.” They are legally required to provide it within 30 days. Review it.

3. Get a fee benchmarking study

A fee benchmarking study compares your plan’s all-in costs and service levels against peer plans of similar size and demographic mix. Several firms will do this for free as a prospecting tool — but be aware they’re usually proposing themselves as the replacement. An independent comparison is worth the modest fee.

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The bottom line

The 401(k) industry works fine for plans that pay attention. It quietly and consistently over-charges plans that don’t. If you’re a Texas business owner who hasn’t benchmarked your plan’s fees in the last three years, the odds are favorable that you’re one of the latter — and the fix is usually a single Zoom meeting plus a signed service agreement, not a full plan overhaul.

If you’d like us to run your plan through a free red-flag review, use our Plan Lookup tool. We pull the numbers straight from your most recent DOL filing and send you a plain-English report. If there’s something worth fixing, we’ll connect you with a licensed Texas-based advisor. If there isn’t, we’ll tell you that too.