======================================================================== GABRIEL IMPLEMENTATION BLOCK Holland Capital Management | Spoke #107 Pillar: 401(k) & Workplace Plans Hub: Workplace Retirement Plan Optimization Article Type: Educational | Audience: Plan Sponsors Conversion Path: Plan Servicing / AUM (Broker of Record) =========================================================================
A plan review may uncover more than you expect inside your Principal 401(k): what it is really costing your people, whether the fund lineup holds up under scrutiny, and whether the advisor of record is still earning their fee. Plans drift over time, and a review may be the best way to find out where yours stands.
If your company’s 401(k) is administered by Principal Financial, you are responsible for reviewing that plan on a regular cadence. ERISA Section 404(a) requires plan fiduciaries to act with the care, skill, prudence, and diligence of a prudent expert. In practice, that means you should be able to document, in writing, why your fund lineup is appropriate, how your fees compare to peer plans, and what oversight process governs the investment menu.
Many Principal plans land somewhere on a spectrum. On one end, plan sponsors who actively benchmark and challenge their plan see fees decline, fund lineups improve, and participant outcomes strengthen over time. On the other end, plans that have not been reviewed in three or more years often carry legacy fund choices, share classes that no longer make sense given current plan assets, and a fee structure that has drifted upward without anyone noticing. The review process is what separates the two.
What a Principal 401(k) Plan Review Should Actually Cover
What Is a Principal 401(k) Plan Review?
A Principal financial plan review is a documented fiduciary audit of an employer-sponsored plan administered by Principal. It examines fees, the fund lineup, recordkeeping service, fiduciary process, and participant outcomes against external benchmarks. The review is a plan sponsor obligation, not a recordkeeper service.
Many plan sponsors who say they review their plan annually are reviewing one document: the year-end performance report Principal sends them. That is not a Principal retirement plan audit. A defensible Principal 401(k) evaluation covers five dimensions, each documented in writing, each tied to an external benchmark, and each examined often enough to detect drift before it becomes a participant problem. A proper Principal 401(k) annual review treats the recordkeeper as one input, not the source of truth.
Fees: The All-In Number, Not the Headline Number
The fee number that matters is the total cost participants pay as a percentage of plan assets. It includes fund expense ratios, the recordkeeper’s administrative fee, any advisor or consultant fee, and any revenue sharing flowing back from fund families to the recordkeeper. Many sponsors have never seen this number assembled in one place. The Form 5500 reports a version of the figure, but interpreting it takes work. A proper review separates each component, compares it to peer plans of similar size and demographic profile, and asks whether the cost is appropriate for the service being delivered.
Fund Lineup: Quality, Breadth, and Share Class
A Principal plan typically offers a mix of Principal-affiliated funds and unaffiliated options. The Principal plan investment review should examine each fund against three criteria. First, does the long-term performance hold up against an appropriate peer benchmark, not just the fund’s own prospectus benchmark? Second, is the asset class coverage broad enough to allow proper diversification across stocks, bonds, and inflation hedges? Third, given current plan assets, is your plan in the appropriate share class? Plans that have grown materially since inception sometimes remain in retail or R-share classes when institutional or R6 share classes would deliver the same investment with lower fees. A rigorous Principal 401(k) fund lineup review surfaces this gap. That single decision can compound into a meaningful difference over a participant’s career.
Recordkeeping and Administrative Service
The review should assess the quality of Principal’s recordkeeping and administrative service across several dimensions: participant portal usability, accuracy and timeliness of Form 5500 filings, nondiscrimination testing results, distribution and loan processing turnaround times, and the responsiveness of the dedicated service team. Recordkeeping is a commodity in many ways, but service quality is not. A plan that takes weeks to process a hardship distribution, or that repeatedly fails ADP and ACP testing, generates risk for the plan sponsor.
Fiduciary Oversight: Process, Not Just Outcome
ERISA fiduciary cases are won and lost on process, not on investment performance. A plan with a documented investment policy statement, a plan committee that meets at least annually, written meeting minutes, an annual fund review with documented decisions, and an independent advisor acting as a 3(21) co-fiduciary or 3(38) discretionary advisor stands on much firmer ground than a plan with no documentation and no outside review. A Principal 401(k) fiduciary audit, conducted at least every few years and supported by external Principal plan benchmarking data, is the cleanest way to demonstrate that the sponsor met its Principal plan sponsor obligations under ERISA. The DOL audit standard is whether you followed a prudent process, not whether you picked the best-performing funds.
Participant Outcomes: The Bottom Line
All of the above ultimately serves one purpose: getting your participants to a successful retirement. The review should look at deferral rates by income tier and tenure, account balances relative to peer benchmarks for similar demographics, and projected income replacement ratios at retirement age. If your participants are saving less than peers in similar industries, or their projected replacement ratios fall well below 70%, the plan design itself may need attention beyond the investment menu.
What Plan Sponsors Commonly Find When They Actually Do the Review
When a plan that has not been benchmarked in three or more years gets a proper review, the same issues tend to surface. None of these are unique to Principal. They are structural patterns common across the recordkeeper landscape, and they often go unnoticed because no one with the time and expertise has looked.
Stale Share Class Assignments
Plans grow. When they cross asset thresholds, they often become eligible for lower-cost share classes of the same funds. The recordkeeper does not automatically migrate the plan. Many plans carry retail-equivalent share classes years past the point where institutional or R6 shares would have been available at the same investment quality. The review surfaces this by comparing each fund’s current share class to the fund family’s institutional and R6 schedules at your current asset level.
Revenue Sharing That Is Not Flowing Back to Participants
Some funds in your lineup may share a portion of their expense ratios back to the recordkeeper. That revenue can be used to offset administrative fees. Whether it actually is, and whether it is being credited back to the participants whose accounts generated it, vary significantly. The review examines fund-level revenue sharing arrangements and confirms that any sharing flows are properly disclosed and used in a way that benefits participants.
Underperforming Funds Left on the Menu
Funds that have underperformed their proper peer benchmarks over a meaningful period often remain on the menu because no one has formally reviewed them against a watch-list policy. Without a documented investment policy statement that defines watch-list and removal criteria, fund decisions tend to drift on inertia. ERISA case law has been unforgiving toward plans that retained materially underperforming funds without a documented review and decision process.
Target Date Suite That No Longer Fits the Participant Base
Target date funds are the qualified default investment alternative for many plans, which means they hold a large share of participant assets. The original target date suite chosen at plan inception may not match your current workforce demographics. A young, equity-tolerant participant base may be served differently from an older, risk-averse one. The review compares your current target date glide path and underlying fund quality against alternatives appropriate for your specific plan demographics.
No Self-Directed Brokerage Option for High-Balance Participants
Principal supports self-directed brokerage account access through Schwab as a platform capability. Whether your specific plan offers SDBA to participants is a plan sponsor decision, governed by your plan document and fiduciary review process. Many plans have not yet made that decision one way or the other. For plans that do offer it, qualifying high-balance participants, executives, or sophisticated savers can access individually managed accounts through Schwab without rolling assets out of the plan. A review that surfaces this gap allows the sponsor to evaluate, against the participant base and the plan’s purpose, whether to enable SDBA access in the plan document. For a deeper look at how plan-level investment construction connects to participant outcomes, our investment portfolio construction guide covers the principles that apply both inside and outside an employer plan.
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Why an Independent Advisor Changes the Review
The recordkeeper is not the right party to review the recordkeeper. Principal’s role is to administer the plan it sold you. It has no incentive to surface that your share class is overpriced, that revenue sharing is flowing in a way that disadvantages your participants, or that another recordkeeper might serve you better at a lower cost. None of that is a criticism of Principal specifically. It applies equally to every recordkeeper in the industry.
An independent fiduciary advisor acting as broker of record on the plan changes the review in three meaningful ways. First, the advisor benchmarks fees against an external dataset of peer plans, surfacing whether your costs are competitive without depending on the recordkeeper’s word. Second, the advisor evaluates the fund lineup against the broader universe of available investments rather than the recordkeeper’s preferred shelf, which often skews toward funds that pay revenue back to the recordkeeper. Third, the advisor signs on as a 3(21) co-fiduciary or 3(38) discretionary advisor, taking on a documented share of the fiduciary responsibility for investment decisions. That shifts liability away from the plan sponsor and creates an independent layer of accountability.
For business owners and executives whose own retirement assets are concentrated in the plan they sponsor, the relationship can extend beyond plan-level oversight. An advisor who serves as broker of record on the plan and also manages individual retirement assets outside the plan can coordinate the two in ways neither the recordkeeper nor a generic plan consultant typically does. Our workplace retirement plan optimization guide covers this integration in more detail, and the broader 401k and workplace plans resource center walks through the strategic decisions that connect plan design to participant retirement outcomes.
Documents and Data to Assemble Before the Review
A productive review depends on having the right documents in front of the committee. If you do not currently maintain these documents, the act of assembling them is itself a useful exercise that often surfaces gaps in the plan’s fiduciary documentation.
- Current plan document and adoption agreement
- Most recent Form 5500 and audited financial statements (if applicable)
- Investment policy statement, if one exists
- Most recent fee disclosure under ERISA 408(b)(2)
- Participant fee disclosure under ERISA 404(a)(5)
- Current fund lineup with share class identifiers and expense ratios
- Most recent ADP and ACP testing results
- Plan committee charter and meeting minutes from prior 12 months
- Participant demographics report (deferral rates by income tier, account balances by tenure, and target date fund usage)
- Service agreement with Principal, including all amendments
A review framed by the philosophy of Preserve. Strengthen. Grow.™ applies the same logic to a retirement plan that it applies to any pool of capital. Preserve the plan’s integrity through proper fiduciary process and documentation. Strengthen the plan by surfacing fee, fund, and design improvements. Grow participant outcomes through better investment choices and higher engagement. The plan exists to serve the people in it. The review is what makes that work over time.
For sponsors who are also evaluating whether to modernize the plan’s tax efficiency at the participant level, the principles in our tax-efficient investing guide connect directly to share class selection and fund placement decisions inside the plan. And for participants who terminate employment and need to evaluate distribution options, our 401k rollover strategy guide covers the rollover decision framework in detail.
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Frequently Asked Questions About a Principal 401(k) Plan Review
How Often Should a Plan Sponsor Conduct a Principal 401(k) Plan Review?
Fund performance should be reviewed quarterly. The plan committee should meet at least annually with documented minutes. A full fee benchmarking against peer plans is generally appropriate every one to three years, and a formal recordkeeper review or RFP every three to five years. Cadence varies by plan size and complexity, but a plan that has gone three or more years without any of these activities is at heightened fiduciary risk.
What Is the Difference Between a 3(21) and a 3(38) Advisor?
A 3(21) advisor acts as a co-fiduciary alongside the plan sponsor. The advisor recommends investment changes, and the sponsor approves them. A 3(38) advisor acts as a discretionary investment manager, with full authority to add, remove, or replace funds without sponsor sign-off on each decision. The 3(38) arrangement transfers more fiduciary responsibility away from the sponsor but requires more trust in the advisor. Many plan sponsors start with 3(21) and move to 3(38) as the relationship matures.
Can a Principal Plan Offer Self-Directed Brokerage Account Access to Participants?
Yes. Principal supports self-directed brokerage account access through Schwab as a platform capability, sometimes referred to as a PCRA in that context. Whether your specific plan offers SDBA to participants is a plan sponsor decision, governed by your plan document and 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. Whether enabling SDBA fits your plan is a question for the committee, evaluated against the participant base and the plan’s purpose. Our workplace retirement plan optimization guide covers this in more depth.
What Happens If the Review Surfaces Fees That Look High?
High fees relative to peer benchmarks do not automatically require switching recordkeepers. The first step is documenting the finding and presenting it to Principal directly. Recordkeepers commonly negotiate fees lower when a plan sponsor brings external benchmarking data. If Principal will not move on fees, the next step is a formal RFP process to evaluate alternatives. Either path requires documentation showing the sponsor acted on the finding rather than ignored it.
Do Small Plans Need to Do All of This?
ERISA fiduciary obligations apply to all plans regardless of size, but the depth and formality of the review process can scale to plan size and complexity. A small plan may not need a quarterly investment committee, but it still needs a documented investment policy, an annual review, and evidence that the sponsor evaluated fees and fund choices against external benchmarks. The plain-language standard is whether a knowledgeable expert would consider the process reasonable.
Can a Plan Sponsor Switch Advisors Without Changing Recordkeepers?
Yes. The advisor of record and the recordkeeper are separate roles on the plan. A plan sponsor can keep Principal as the recordkeeper and engage a different advisor as broker of record. The transition typically involves a formal change-of-broker letter signed by an authorized plan officer and submitted to Principal. The recordkeeping relationship and participant experience remain unchanged. This is a common path for sponsors who are satisfied with Principal’s administration but want independent fiduciary oversight on the investment side.
What Does a Fiduciary Advisor Cost on a Typical Principal Plan?
Independent fiduciary advisor fees typically range from a small flat dollar amount on the smallest plans to a basis-point fee on plan assets, with the rate declining as those assets grow. The fee is disclosed transparently in the service agreement and the participant fee disclosure. In many cases, the savings surfaced through fee benchmarking, share class migration, and fund replacement may exceed the advisor fee, though specific outcomes depend on the plan’s starting condition and cannot be promised in advance. Our 401(k) Plan Review & Benchmarking guide covers related considerations in more depth.