Retirement Retirement Planning

If Your 401(k) Includes These Funds, You May Be Losing $1,000s in Retirement

Conflicts of interest and active fund management can increase your fees.

Edited by Laura Hohenstein

Updated Jan. 20, 2026

Investing in your company's 401(k) plan is a smart way to save money for your retirement and possibly get an employer match. However, not all funds that your money goes into are created equal due to common hidden costs and conflicts of interest. As you're diligently contributing to your retirement, you may unknowingly miss out on thousands of dollars in long-term returns.

Understanding common fund issues and their impact on your retirement savings can help you avoid money mistakes.

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What you should know about 401(k) plans

When you invest in 401(k) plans, you typically put your money into various index and mutual funds included in your plan's limited lineup. Your employer might automatically select these investments, or you may choose them manually. Your choices are important for the long-term growth of your savings.

Along with the ability to earn a return on these funds, there are various fees to be aware of, which cut into your return. Common examples include plan administration fees, investment fees (such as expense ratios), and individual service fees. And some fees are less obvious or costlier than others.

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How conflicts of interest can lead to hidden costs

Plan administrators and recordkeepers play important roles in managing 401(k) plans. However, their involvement can lead to arrangements that don't work to the financial advantage of plan participants.

A 2025 study from the University of Texas at Austin McCombs School of Business found a conflict of interest in which plan administrators often preferred funds with revenue-sharing agreements that benefited them. Essentially, such investments reimburse the administrator a portion of the fee. The data showed that this was a feature for one or more funds in 54% of 401(k) plans.

While such funds were more likely to be included in the plan options, they led to higher costs for plan participants, and the difference in performance compared to cheaper options wasn't enough to offset the extra cost. Despite that drawback for investors, these funds often remained in the plan's lineup.

Plus, revenue-sharing fees are often hidden from plan participants and included in a fund's operating expenses.

Actively managed funds are also linked to higher costs

Funds with revenue-sharing agreements may not be the only thing unknowingly cutting into your savings. Research has shown that a few other types of funds typically have higher costs without above-average returns.

Actively managed funds involve portfolio managers who conduct research and make investment decisions to try to beat the average market return. The extra cost of this work shows up in an active fund's expense ratio, cutting into returns for investors. While you might pay a very low expense ratio of below 0.15% for some active funds, others can charge you 1% or more.

But despite their higher costs, active funds don't always come with better performance than lower-cost passive funds. S&P Global found this to be the case in mid-2025 for large-cap S&P 500 equity funds.

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Why workers often don't realize what's happening

Research from the U.S. Government Accountability Office found that many 401(k) plan participants weren't aware of fees associated with their accounts (41%) or had trouble understanding complicated disclosures (40%).

While plan administrators need to meet legal requirements, including providing participants with key details about the funds and their fees, you can easily overlook these documents. This is especially the case if you go with the default funds your provider recommends or set up auto-enrollment. And even if you do read them, the fees can seem confusing or hard to find for those without an investment background.

Another major issue lies in how your plan administrator deducts fees. While some fees may appear as separate charges to the 401(k) plan, others simply come out of your returns. Since you're not receiving a separate "bill" showing you're losing money on those funds, you may be completely unaware of them.

Example of how small differences can lead to big losses

To see how a small difference in returns or fees can impact your retirement savings, assume that you start with nothing in your 401(k) and contribute $12,000 annually for 20 years.

If you earned a hypothetical 7% return, your estimated 401(k) balance might reach around $492,000 before any fees. But if you have to pay annual fees of varying amounts, here's how the balance might fall:

0.25%: around $479,000
0.50%: around $466,000
0.75%: around $453,000
1%: around $441,000
1.25%: around $430,000

As these estimates show, even a low annual fee can cost you several thousand dollars over the long term because of the lower actual return you're earning. This lost money could put you at risk of outliving your retirement savings and being unable to live the lifestyle you desire in retirement.

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Take time to better understand your 401(k) plan

While you can't expect to avoid all 401(k) fees, becoming more aware of your plan and its investments can go a long way toward helping you reduce costs and maximize your savings.

Carefully research your plan's various fund offerings, including their associated costs and performance comparisons, so you can choose funds that maximize your actual returns. Review fund prospectuses to understand the specifics, including the fund's risks, various expenses, historical returns, and objectives.

Check your plan's disclosures to learn about other types of fees, such as those associated with revenue sharing or plan administration. You can find these in the required participant fee disclosure. Plus, keep an eye on your 401(k) statements, which often arrive every quarter and provide a thorough overview of your account and investments.

Bottom line

Given that data from Empower showed that Americans had an average 401(k) balance of $326,459 in October 2025, even paying slightly higher fund fees than necessary can have a significant impact. So, it's smart to learn about your investments and to consider asking a financial advisor if anything is confusing.

And while you're planning for retirement, consider other retirement income sources that help cover the gap between your 401(k) withdrawals and expenses. This includes determining when to claim Social Security and exploring options such as working a part-time job, purchasing annuities, and investing in other accounts, such as IRAs.

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