Credit: Maria Korneeva / Getty Images
Key Takeaways
-
More than half of 401(k) plans offered consumers at least one investment fund option that shared revenue with the plan’s administrator, a 2025 study found.
-
Those plans had higher hidden costs, which can add up to thousands in lost value by the time you retire.
Do you really know how your 401(k) plan is invested? If not, you might be putting your money in costlier mutual funds and not know it, new research suggests.
Researchers analyzed the 1,000 largest 401(k) plans between 2009 and 2013—the only years when the Department of Labor required detailed public disclosure of how plan administrators are paid. They found that many plans include investment options that share revenue with administrators, creating incentives that can work against savers’ best interests.
“[It’s] a significant problem if employees do not understand the costs of their investment options,” said Clemens Sialm, a finance professor at the University of Texas at Austin and one of the study’s authors. “The result is that you might be paying more than you realize for weaker returns.”
What The Researchers Found
The researchers found that the average 401(k) plan offered about 22 different investment options to the typical participant, with those fund options coming from an average of seven different companies. About 40% of the available investments were affiliated with the 401(k) provider, or “record-keeper,” and the remaining 60% of funds were from third parties.
About half (54%) of plans had at least one investment fund option that shared revenue with the plan’s record-keeper, while funds that did share revenue were some 60% more likely than non-revenue sharing funds to be added to a given plan’s menu of options. They were also less likely to be removed once they had been added.
In short, the researchers found that administrators of 401(k) plans are more likely to choose funds that pay them more than just the traditional fees. While that’s not surprising, the funds that shared revenue often failed to offset those higher hidden costs with lower upfront fees, and didn’t provide better-than-average returns to make up for the revenue sharing element of their funds, the study found.
That means that without knowing it, you may have your money invested in a fund that offers lower returns than otherwise.
How Can This Be Fixed?
Sialm said it’s “not very helpful” for companies to reveal the terms of the plans within long policy documents, where employees are unlikely to read them. Instead, he said, employers should explain these 401(k) options. up front and in plain language. And employees should push for more transparency, he added.