Fees for 401(k) retirement plans are higher at small companies

One reason for the discrepancy in fees is that large companies are able to spread record-keeping and other fixed expenses over a larger base of employees.

By Walter Hamilton

Sept. 9, 2013 12:10 PM PT

Employees at small companies pay much higher fees in their 401(k) retirement plans than people at large firms, according to a new study.

Over a 35-year career, the average worker at a small company will pay $113,206 more in fees than a counterpart at a huge corporation, according to an analysis by Bankrate.com.

“People who work for very large companies are most likely to pay comparatively little for their retirement plans,” according to the analysis. “Employees of small companies are likely to pay a lot more.”

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Some of the fee discrepancy is understandable.

Larger companies typically have greater economies of scale. They’re able to spread record-keeping and other fixed expenses over a larger base of employees, thereby lowering the average cost. They also have greater negotiating leverage with 401(k) providers such as mutual fund companies.

But there’s another factor, according to Bankrate.com.

Larger companies typically devote more resources and personnel to 401(k) oversight. At small companies, by contrast, that job often falls to people juggling a variety of unrelated tasks, many of whom possess limited financial knowledge -- people who “just fell off the investing turnip truck,” according to Bankrate.com.

There is some encouraging 401(k) news.

A growing number of companies are automatically enrolling workers in 401(k) plans and boosting the amounts employees save every year, according to a study by Bank of America Merrill Lynch.

With the blessing of Congress, so-called auto-enroll and auto-increase are becoming more prevalent in corporate America. Companies automatically place new employees in 401(k) plans. They then automatically deduct more from workers’ paychecks each year in 401(k) contributions.

Employees can opt out of the plans, but the idea is that people are far likelier to save for retirement if companies do it for them.

But problems remain.

The average auto-enrollment default rate is a mere 3%, according to Bank of America Merrill Lynch. That’s far too low to make a significant difference in retirement savings.

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Twitter: @LATwalter