Wondering whether the fees in your Principal 401(k) are too high? You cannot tell from your own numbers alone. The only real test is benchmarking your all-in cost, recordkeeping, advisor fees, fund charges, and revenue sharing, against what comparable plans pay. A fiduciary advisor can run that benchmark and show you where your plan stands.
Why Principal 401(k) High Fees Matter to Plan Sponsors
The Employee Retirement Income Security Act (ERISA) places a duty of prudence on every plan sponsor. That duty requires sponsors to ensure plan fees are reasonable in relation to the services received. It does not require the cheapest plan available. It does require a documented process that demonstrates the sponsor evaluated the alternatives.
When a Principal-administered plan has been in place for years without a formal fee benchmarking review, that documented process may not exist. The plan may still be reasonable. It may not be. The sponsor cannot answer that question without a current benchmarking analysis, and the absence of an answer is itself a fiduciary problem.
Recent ERISA litigation has not been kind to sponsors who could not document their fee review process. Settlements have run into the tens of millions of dollars across the industry. Many of those cases involved plans where participants paid more than they would have under a comparable, well-benchmarked structure. The sponsors named in those suits typically did not know what their participants were paying until a plaintiff’s attorney calculated it for them.
Where Do Principal 401(k) Fees Actually Come From?
Principal 401(k) fees come from three layers: recordkeeping and administration charges paid by the plan, asset-based fund expense ratios deducted inside each investment option, and revenue sharing payments routed from fund families back to the recordkeeper. Participants pay across all three.
The Three Layers of Fees Inside a Principal 401(k) Plan
To understand whether a Principal plan is expensive or competitive, the sponsor has to look at all three fee layers together. Looking at any one in isolation produces a misleading answer.
Recordkeeping and Administration Charges
This is the layer many sponsors recognize. Principal charges either a per-participant flat fee, a basis point fee on plan assets, or a hybrid of the two. The per-participant model tends to favor plans with larger account balances. The asset-based model tends to favor plans with smaller balances. As participant balances grow over time, an asset-based model can quietly become expensive without any contract change.
Asset-Based Fund Expense Ratios
Inside each investment option, the fund company deducts an annual expense ratio from fund assets. The participant never writes a check. The cost shows up as a drag on returns. A plan menu loaded with actively managed retail share class funds can carry expense ratios two to ten times higher than institutional share class equivalents of the same fund. The plan sponsor selects the menu. The participant pays the difference.
Revenue Sharing Payments
Revenue sharing is the layer that catches many sponsors by surprise. Fund companies on the Principal platform often pay the recordkeeper a portion of their fund expense ratio in exchange for being on the menu. This can lower the visible recordkeeping fee. It can also raise the total cost to participants compared to a clean share class with no revenue sharing. The sponsor sees a low-looking recordkeeping bill. The participant pays more across the fund expense ratio.
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Warning Signs That Principal 401(k) Fees May Be Too High
A plan does not need to be in obvious distress to be running expensive. Many overpriced plans look fine on the surface. The warning signs tend to be quiet, structural, and easy to overlook without a deliberate review.
Several patterns tend to appear together when a plan is paying more than it should:
- Retail share classes on the investment menu. If the fund tickers on the lineup match what is sold to retail investors, the plan is likely paying retail prices for institutional services.
- No documented benchmarking review in the past three years. ERISA does not specify a frequency. Industry practice is every three years at minimum, more often if the plan has grown materially.
- An asset-based recordkeeping fee that has not been renegotiated. If plan assets have doubled since the original contract, the recordkeeper is being paid twice as much for the same work without any service expansion.
- Revenue sharing not credited back to participants. Some plans return revenue sharing to the participants whose investments generated it. Many do not. Where it is retained, it functions as additional compensation to the recordkeeper that participants ultimately funded.
- No independent fiduciary advisor on the plan. When the only voices in the room are the recordkeeper and the sponsor, there is no independent party whose job is to challenge the fee structure.
- A fund lineup heavy with proprietary funds. Recordkeepers sometimes incentivize their own affiliated funds. Whether those funds are the best fit for participants is a separate question that requires independent review.
- Participant complaints about investment performance or costs. Anecdotal participant feedback is not evidence. It can be a signal that the plan deserves a closer look.
None of these patterns is automatically a problem. Each is a question. The fiduciary issue is whether the sponsor has asked the question and documented the answer.
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How Fee Compounding Eats Participant Retirement Balances
The reason fee differences matter is not the difference itself in any single year. It is what compounding does to that difference across a 20- or 30-year career. A small annual gap, applied consistently to a growing balance, becomes a large absolute number by the time the participant retires.
The illustration above is hypothetical. It uses a 7% gross annual return on a $100,000 starting balance with $10,000 annual contributions, with all-in fees of 1.50% in one scenario and 2.25% in the other. Actual outcomes depend on market performance, contribution patterns, employer match, and plan design. The point of the illustration is not the specific dollar figure. It is the structural reality that fee differences compound. A plan that runs 75 basis points hot does not produce a 75-basis-point shortfall. It produces a multi-hundred-thousand-dollar shortfall over a long career, multiplied across every participant in the plan.
That math is what makes fees a fiduciary issue and not just a cost issue. The participant who retires with less because the plan was expensive does not get those years back. The sponsor who could not document a fee review process does not get the protection of having one.
What an Independent Fee Review Actually Looks Like
A credible independent fee review covers all three fee layers and produces a written record the sponsor can rely on if the plan is ever questioned. It is not a sales pitch dressed up as a benchmarking exercise, and it is not a one-page report from the existing recordkeeper.
The components of a defensible review include: a complete inventory of every fee charged to the plan or to participants, a benchmarking comparison to plans of similar size and structure, an evaluation of the share classes available on the menu against institutional alternatives, an analysis of revenue sharing arrangements and whether they are credited back to participants, and a written conclusion about whether the total cost is reasonable for the services delivered.
This kind of review is one of the core functions of an independent fiduciary advisor serving as broker of record on the plan. The recordkeeper has a commercial interest in keeping the plan as is. The sponsor has a fiduciary interest in confirming the plan is reasonable. An independent advisor is the party whose job is to bridge that gap with documentation that holds up under ERISA scrutiny.
How a Broker of Record Relationship Changes the Picture
An independent advisor serving as broker of record on a Principal-administered plan brings three things the sponsor often does not have in-house. First, an ongoing fee benchmarking process tied to industry data. Second, an independent investment review covering fund performance, share class selection, and menu construction. Third, an evolving record of fiduciary documentation that demonstrates the sponsor met the duty of prudence year after year.
The recordkeeper relationship does not change. Principal continues handling the administration, the participant statements, and the plan website. What changes is who sits on the sponsor’s side of the table when the recordkeeper proposes terms or when the menu needs review. That seat at the table is the difference between a sponsor who is documented and a sponsor who is exposed.
Principal supports self-directed brokerage account access through Schwab as a platform capability. Whether a specific plan offers SDBA to participants is a separate question, governed by the plan document and the sponsor’s fiduciary review process. For plans that do offer it, qualifying high-balance participants can access individually managed accounts through Schwab without rolling assets out of the plan. None of that is the reason to engage an independent broker of record. The fee benchmarking, the investment menu review, and the fiduciary documentation stand on their own. SDBA access is a downstream benefit that becomes relevant for the participants whose balances justify it.
How This Connects to Broader Retirement Plan Strategy
Fee analysis on a Principal-administered plan does not stand alone. It sits inside a broader question about whether the plan is serving its participants well, whether the sponsor’s fiduciary process is documented, and whether the investment menu reflects current best practice. Sponsors evaluating fees often discover other questions worth answering at the same time. Workplace retirement plan optimization covers the full sponsor and participant view, including investment menu design, participant outcomes, and fiduciary infrastructure. The Principal 401(k) high fees question is one part of that broader review.
For sponsors weighing whether to retain Principal or evaluate alternatives, the broader landscape of 401k and workplace plans covers recordkeeper evaluation, plan design, and participant-level decisions. Plan-level structure also connects directly to participant rollover decisions, where 401k rollover strategy matters for departing participants who want professional management on their balances.
Fee structure inside the plan also affects participant outcomes when participant balances eventually become part of a retirement portfolio. Investment portfolio construction covers how participants and sponsors think about long-term portfolio design, and tax-efficient investing addresses how plan structure interacts with broader tax planning across multiple account types.
Holland Capital Management approaches every plan-level engagement through the same investment philosophy that governs individual portfolios: Preserve. Strengthen. Grow.™ In the plan sponsor context, preservation begins with documenting the fee structure, strengthening means correcting what the documentation surfaces, and growth follows from a plan that is no longer leaking value at the margins.
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Frequently Asked Questions
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How Do I Know If Our Principal 401(k) Fees Are Too High?
Compare the all-in cost of your plan, including recordkeeping fees, fund expense ratios, and any revenue sharing, against benchmarking data for plans of similar size. A plan that has not been benchmarked in the past three years often runs higher than it should because asset growth and share class evolution outpace contract terms. The right answer is not necessarily to switch recordkeepers. It may be to renegotiate, change share classes, or restructure revenue sharing.
What Is a Reasonable All-In Fee for a Principal 401(k) Plan?
Reasonable depends on plan size, complexity, and the services delivered. Industry benchmarking data tends to show all-in costs declining as plan assets grow. Plans with under $5 million in assets often run higher on a percentage basis than plans with $50 million or more. The right benchmark is not a single number. It is the cost of comparable plans in your asset range, measured against the services your plan actually receives.
Can a Plan Sponsor Be Sued for High 401(k) Fees?
Yes. ERISA fiduciary breach litigation has targeted plan sponsors across many recordkeepers, including Principal-administered plans. Cases have generally focused on whether the sponsor maintained a documented prudent process for evaluating fees, share classes, and investment options. The merits of any individual case depend on its facts. The defensible position for any sponsor is a current, documented benchmarking review and an independent fiduciary process.
What Is Revenue Sharing in a Principal 401(k) Plan?
Revenue sharing is a payment from a fund company to the recordkeeper, embedded in the fund’s expense ratio, used to offset plan administration costs. It can lower the visible recordkeeping fee while raising the participant’s total cost compared to a clean share class. The fiduciary question is whether the sponsor has documented how revenue sharing is structured, whether it is credited back to participants, and whether the net result is reasonable.
How Often Should We Benchmark Our Principal 401(k) Plan Fees?
Industry practice is to benchmark fees at least every three years. Many sponsors review more frequently when plan assets have grown materially, when participant count has changed significantly, or when the recordkeeping contract is approaching renewal. The frequency is less important than the documentation. A sponsor who can produce a written benchmarking record on demand is in a meaningfully stronger fiduciary position than one who cannot.
Does Changing Share Classes Inside the Menu Reduce Participant Fees?
Often, yes. The same fund can exist in multiple share classes with different expense ratios, sometimes differing by 30 to 50 basis points or more. Larger plans typically qualify for institutional share classes that retail investors cannot access. If a plan has been in place for years without a share class review, there is a reasonable chance lower-cost versions of the same funds are available. The sponsor’s fiduciary process should address share class selection explicitly.
What Does an Independent Broker of Record Do for a Principal 401(k) Plan?
An independent broker of record provides the sponsor with ongoing fee benchmarking, independent investment menu review, and fiduciary documentation that builds over time. The recordkeeper relationship with Principal continues unchanged. What changes is having an independent advisor whose role is to evaluate the plan on the sponsor’s behalf and document that evaluation. For more on how this fits into a broader plan strategy, see workplace retirement plan optimization.
Can High-Balance Participants in a Principal Plan Access Professional Management?
In many cases, yes, depending on the plan. Principal supports self-directed brokerage account access through Schwab as a platform capability. Whether SDBA is actually offered inside a specific plan is a plan sponsor decision, governed by the plan document and the sponsor’s fiduciary review process. For plans that do offer it, qualifying high-balance participants can access individually managed accounts through Schwab while keeping the assets inside the plan, with no rollover required. The decision to add SDBA to the plan menu typically surfaces as part of a broader plan-level review, not as a standalone request. For a deeper look, see our guide to 401(k) Plan Fees & Conflicts.