Conventional wisdom says we should focus on your own journey throughout life. Whether it’s your fitness gains, money in the bank, or your home’s value, the thinking goes that you should measure yourself against your past self, not your neighbors.
However, sometimes we should compare ourselves to others to ensure we’re actually performing at the level we should be. Take your firm’s retirement savings plan, for example. While tracking your 401(k) growth over time is important, you also need to know: Is your plan keeping up with industry standards? Are you getting what you should be getting compared to similar companies?
What Is Strategic Benchmarking in Retirement Plans?
Just as you’d benchmark your business’s performance against competitors, you should benchmark your company’s retirement plan against others. In fact, the Department of Labor requires prudent, ongoing monitoring and documentation¹. By systematically evaluating key metrics like investment returns, participation rates, employer match usage, and fees, you can help ensure your plan remains competitive, compliant, and aligned with participants’ best interests. The goal is twofold: identify areas for improvement and document that the plan is being managed prudently.
From a fiduciary standpoint, benchmarking is part of demonstrating that you act “with care, skill, prudence, and diligence,” as ERISA requires. If a certain plan feature is subpar (for example, your plan’s fees are well above average), benchmarking lets you know that you should take action.
What gets measured gets managed, and that applies as much to retirement plans as to any business metric.
Key Metrics to Benchmark Annually
(Net of Fees)
Investment Performance (Net of Fees)
Measure how each investment in the plan (e.g., mutual funds, ETFs, target-date funds) is performing after fees, and compare those returns to appropriate benchmarks. For instance, if your plan’s S&P 500 index fund earned 6% over 5 years, is that close to the S&P 500 index return? More importantly, look at net returns versus peer funds. Consistently underperforming funds or high expense ratios are red flags.
Consider replacing laggard funds or more expensive share classes with lower-cost, better-performing alternatives. Remember that even a seemingly small difference in fees can significantly erode returns over time. The average 401(k) plan charges about 1% in annual fees, and a fee just 0.5% higher than average can meaningfully reduce an employee’s savings over the long run².
Plan Participation Rate
This is the percentage of eligible employees who participate in the plan. Low participation means many workers aren’t building retirement security (and perhaps you’re not maximizing plan testing results either). Compare your participation rate to industry averages, which, thanks to auto-enrollment features, have reached record highs around 83% participation in recent years³. If your plan’s participation is, say, 60–70%, it’s clearly lagging.
Investigate why. You might need to improve employee education, introduce automatic enrollment or auto-escalation of contributions, or adjust eligibility criteria. A well-benchmarked plan strives to at least meet, if not exceed, average participation rates (often 80%+), ensuring the plan truly benefits your workforce.
Employer Match Effectiveness
If your plan offers an employer matching contribution (e.g., 100% of the first 4% of pay), evaluate how well employees are utilizing it. Benchmark the percentage of employees who contribute enough to get the full match, as well as the generosity of your match formula against market norms. (For reference, a common match is around 4% of pay; one study found an average matching limit of about 4.5%².) If a large portion of your team isn’t contributing at least up to the match threshold, that’s a problem – both for them (they’re leaving free money on the table) and for you (the plan’s intended benefit isn’t fully realized).
Enhance communication about the match, consider adjusting the match formula (some plans see better uptake with stretch matches like 50% of the first 8%), or implement automatic enrollment at a contribution rate that captures the full match.
Plan Costs and Fees
Every dollar paid in fees is a dollar out of participants’ pockets, so you must keep plan costs in check. Benchmark all plan fees – including investment expense ratios, recordkeeping and administration fees, advisor or consulting fees, etc. – as a percentage of assets and on a per-participant basis. Compare these to industry averages for plans of similar size. Are your investment fees in line with low-cost providers? Is your recordkeeper’s fee structure reasonable compared to competitors? Excessive fees are a leading cause of fiduciary litigation in recent years, so you need to demonstrate that your plan’s fees are “reasonable” relative to the services provided.
If your total plan cost is, say, 1.2% of assets but comparable plans operate at 0.8%, that’s a glaring variance that needs attention. You can then leverage benchmarking data to negotiate fee reductions with providers or switch to lower-cost vendors. The payoff for participants is significant, as keeping fees low can add tens of thousands of dollars to their eventual retirement nest eggs².
401(k) Plan Benchmark Calculator
Compare your plan's performance against industry standards
Key Recommendations
The results should not be used as the sole basis for making decisions about your retirement plan. For a comprehensive benchmark analysis tailored to your specific plan, consult with a qualified retirement plan advisor or conduct a formal benchmarking study through your plan provider. Past performance does not guarantee future results.
Regulatory and Legal Considerations
(SECURE 2.0 and ERISA Oversight)
Staying on top of benchmarking is actually a legal imperative. Recent regulatory changes and enforcement trends make it clear that retirement plan sponsors must be proactive and informed.
SECURE Act 2.0 Updates
The SECURE 2.0 Act (enacted in late 2022) introduced numerous provisions that affect employer-sponsored plans. Notably, starting in 2025, most new 401(k) and 403(b) plans will be required to automatically enroll employees (with an opt-out option). This means if you establish a new plan, you must begin defaulting employees into the plan at a contribution rate of at least 3% of pay (and auto-increase them annually up toward 10–15%)⁴.
SECURE 2.0 also expanded coverage for part-time workers: beginning in 2025, long-term part-timers (those working at least 500 hours in two consecutive years) must be allowed to participate in the 401(k)⁴. This is an enhancement over the prior 3-year rule. Plan sponsors should benchmark their eligibility provisions against these new requirements, and you may need to amend plan documents and update administration to include more employees.
Additionally, SECURE 2.0 raised contribution limits and catch-up contributions for older workers (ages 60–63 will have higher catch-up limits), and made other tweaks like optional employer matching of student loan payments.
ERISA Fiduciary Duties and Enforcement
Under ERISA, you, as a plan sponsor, are a fiduciary, obligated to run the plan solely in the interest of participants and with a high standard of prudence. Benchmarking plays a key role in fulfilling that duty. Why? Because you must ensure the plan’s investments and fees are reasonable and prudent. If you fail to do so, you can be held personally liable for any losses to the plan.
The Department of Labor explicitly warns that fiduciaries who don’t follow ERISA’s standards – for example, by allowing excessive fees or neglecting to replace underperforming investments – may be required to restore losses and could even be removed from plan management⁵. That’s a strong incentive to keep a documented history of comparing and improving your plan’s offerings. In practice, conducting an annual benchmarking review (and keeping minutes or reports of the process) is an excellent way to demonstrate a “prudent process” in case your plan ever faces an audit or lawsuit.
ERISA Fiduciary Duties and Enforcement
by DOL for Participants
for Lawsuit Settlements
Potential Consequences for Plan Sponsors
Regular benchmarking demonstrates prudent fiduciary process
And make no mistake, regulatory eyes are watching. The DOL’s Employee Benefits Security Administration (EBSA) has been very active in auditing plans and enforcing ERISA violations. Each year, EBSA recovers well over a billion dollars on behalf of plan participants due to errors, breaches, or excessive costs in retirement plans. On top of that, plan sponsors have been hit by a wave of private class-action lawsuits.
In 2023, for example, 401(k) litigation settlements reached record highs with dozens of companies (large and small) having paid out settlements, some in the tens of millions, over allegations of excessive fees or poor investment choices⁶.
On top of that, the courts have reinforced that having a “meaningful benchmark” is crucial when evaluating fees, again cementing the importance for sponsors to formally compare their plan to others⁶.
Benchmark and Align Your Plan Today
The rewards of doing it right include improved investment performance for participants, lower costs, higher engagement, and peace of mind that you’re meeting your fiduciary obligations. In a complex regulatory landscape, benchmarking is your early warning system and your road map to enhancement.
Don’t wait for an audit, lawsuit, or an unhappy employee to force a review. As both a wealth advisor and a business owner myself, I cannot overstate the importance of benchmarking. It helps ensure your retirement plan is not only competitive in the marketplace but also in sync with your firm’s broader financial, retirement, and estate plans.
We can help you assess your plan’s performance, fees, and features in depth. Think of it as a financial health check-up for one of your most important benefit programs. By investing a little time now, you can strengthen your plan’s outcomes for years to come and confidently demonstrate that your retirement plan is as exceptional as the rest of your business.
References:
- https://www.dol.gov/general/topic/retirement/fiduciaryresp Department of Labor
- Investopedia – “How to Compare Your 401(k)” by Matt Ryan Webber, reviewed by S. Silberstein. (Investopedia, updated 2021) – Discusses comparing plan fees, match, investment options. [Notes that the average 401(k) expense ratio is about 1%, the average employer match is around 4–5% of salary, and that even a 0.5% difference in fees can significantly affect retirement savings.]investopedia.com
- Vanguard – “How America Saves 2023 – Press Release: Vanguard Reports Record 401(k) Participation.” (Vanguard, June 15, 2023) – Reports that adoption of automatic enrollment led to a record-high 83% participation rate in Vanguard-recordkept 401(k) plans (with an average total contribution rate of 11.3% of pay).corporate.vanguard.comcorporate.vanguard.com
- Investopedia – “5 Key Changes to 401(k)s in 2025 and What They Mean for You.” by Greg Daugherty. (Investopedia, Dec 11, 2024) – Explains provisions of the SECURE 2.0 Act effective 2025, including mandatory auto-enrollment for new plans (starting at 3% and auto-escalating) and a reduced service requirement (2 years) for long-term part-time workers to join 401(k) plans.investopedia.cominvestopedia.com
- U.S. Department of Labor – “Fiduciary Responsibilities.” (DOL.gov, accessed 2025) – Official guidance on ERISA duties. Emphasizes that plan fiduciaries must act prudently and solely in participants’ interest, and that those who fail to do so may be held personally liable for any losses to the plan. [ERISA fiduciaries can be removed or forced to restore losses if they breach their obligations.]dol.govdol.gov
- InvestmentNews – “401(k) settlements went way up in 2023.” by Emile Hallez. (InvestmentNews, Jan 11, 2024) – Details trends in ERISA litigation. Notes that while new 401(k) lawsuits filed in 2023 were fewer than prior years, settlement amounts hit record highs, with numerous cases alleging excessive fees or underperformance. Also observes an increase in smaller plans being targeted and the importance of benchmarking fees to demonstrate prudence in court.
