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Workers who save in a 401(k) plan offered by a small business pay fees that are twice as high as those paid by employees who work at the largest companies in the U.S.

The smallest workplace retirement plans (those with less than $25 million in aggregate savings) charge total fees of 0.88% a year, while the largest (those with more than $500 million) charge 0.41% annually, according to a Morningstar Center for Retirement and Policy Studies report.

Workers pay these 401(k) fees annually to financial firms like investment managers and plan administrators. The fees are automatically withdrawn from workers’ accounts as a percentage of their total savings.

“The U.S. [retirement] system does not work nearly as well for people who are not fortunate enough to work for larger, established employers,” said the study’s authors, Aron Szapiro, head of retirement studies and public policy, and Lia Mitchell, senior policy research analyst.

The study looks at median fees (those right in the middle of a group) in 2019, the most recent year of complete federal data. Many plans within size groups carry fees both lower and higher than the median.

More than 30% of the smallest plans have total costs exceeding 1% a year, according to Morningstar.

The difference between small and large plans can amount to a lot of money over decades of saving for retirement.

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“Workers at employers with smaller plans who are saving just as much as those at employers with larger plans could have around 10% less in assets at retirement because of higher fees,” Szapiro said.

Employers with so-called “mega” plans can negotiate much lower fees from investment managers and other service providers than businesses with small 401(k) plans. They’ve also been more likely to adopt investments other than mutual funds that tend to be lower-cost.

There are just 2,115 employers offering so-called “mega” plans (those with more than $500 million). But their plans account for a big portion (43%) of all 401(k) investors, according to Morningstar.

Meanwhile, there are 649,000 small plans (with less than $25 million), but they account for 27% of all 401(k) savers, Morningstar found.

(The remaining savers fall somewhere in the middle of small and mega plans.)

While many workers have access to a low-cost 401(k) plan at work, the data speaks to a fragmented system that relies heavily on the largest businesses to succeed.

“The jobs of the future may not be with employers who offer these savings opportunities,” according to Szapiro and Mitchell. “Moreover, this concentration underscores that policymakers must maintain incentives that these large employers find attractive.”

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