The best 401(k) plans share four measurable traits: nearly every eligible employee participates, total savings run in double digits, all-in costs sit at or below the benchmark for the plan's size, and balances stay invested until retirement.
What separates the plans that hit those marks from the rest is three sponsor-level decisions: automatic plan design, costs that are known and benchmarked, and money that stays invested in the plan.
What follows are the 401(k) plan design best practices behind those results, with this year's data showing what each one is worth.
What Is Really at Stake Here
Running a retirement plan puts two things on the line.
One is your employees' security: they rely on the plan to build enough savings to retire. The other is your own standing as a fiduciary: the law holds you responsible for running the plan prudently. The same committee decisions determine both, and both are exposed when those decisions go unexamined
Getting there is simpler than most committees expect. It takes the right questions in one place and about an hour of committee time, which is exactly what the checklist below is built for.
Does Automatic Enrollment Really Make That Much Difference?
Yes, and by more than almost anyone expects.
Vanguard's How America Saves, the 25-year study of more than 4.5 million participants, puts automatic enrollment plans at 94 percent participation versus 64 percent for voluntary enrollment.
Savings rates follow: 12.2 percent of pay in automatic plans versus 7.5 in voluntary ones, including employer contributions.
Here is the difference in plain dollars, using the most common match formula in Vanguard plans, 50 cents per dollar on the first 6 percent of pay. On a 60,000 dollar salary, that formula offers up to 1,800 dollars of employer match.
An employee defaulted at 3 percent defers 1,800 dollars a year and collects only 900 dollars of that match, 2,700 dollars in total.
Defaulted at 6 percent, the same employee defers 3,600 dollars and collects the full match, 5,400 dollars in total, exactly double.
With automatic increases carrying the deferral to 10 percent, annual savings reach 7,800 dollars.
A 3 percent default does not just hold down the employee's own saving. It leaves half the offered match unclaimed.
What to do: if your plan lacks automatic enrollment, a default of at least 4 percent, and automatic increases, put all three on your next committee agenda. Among Vanguard plans, 62 percent now default at 4 percent or higher.
This is simply what a well-run plan looks like now.
What Is a Reasonable Fee for a 401(k) Plan?
There is no single right number, but there is a number you must know: your all-in cost in basis points, combining recordkeeping, administration, investments, and advisory fees.
According to Morningstar's 2026 Retirement Plan Landscape Report, small plans pay a median of 75 basis points, the largest pay 27, and 27 percent of small plans charge more than 100 basis points all-in.
Scale explains part of the gap, not all of it.
Morningstar found that more than 24 percent of small plans have costs below the median mid-sized plan. Small does not have to mean expensive.
It usually means nobody looked.
Fees get set when the plan is installed, often inside a bundled arrangement where no single all-in number is visible, and then nothing prompts a second look.
The recordkeeper does not volunteer that the plan has outgrown its pricing, and no regulation forces a review onto the calendar.
The quarter of small plans paying mid-sized prices are not lucky. They are simply the plans where someone compared.
What to do: get to one all-in number and benchmark it against plans your size.
If you are above the median, the answer is usually one of two things.
Either the premium buys services your participants actually use, in which case the committee documents that rationale and the review is done, or it does not, in which case the options are to renegotiate with the current providers, move to lower-cost share classes, or take the plan to market.
Make the benchmark part of your committee's quarterly review agenda rather than a one-time project, and if your last one is more than two years old, it is overdue. Either way, write down what you found and what you decided.
Where Is Money Leaving Your Plan?
Steadily, and through more channels than most committees realize.
Morningstar estimates that more than 650 billion dollars left workplace retirement plans every year from 2020 through 2024, most of it rolled over to IRAs.
That money does not disappear, but it does leave the plan, and with it the institutional pricing and oversight the plan provides.
Your plan has its own version of this: loans defaulting after termination, small balances cashed out, and retirees rolling everything out for lack of a partial option.
What to do: know how much money left your plan last year and through which channels, then look at three design levers:
- Partial distributions. Retirees stay in the plan when all-or-nothing is not the only choice.
- Continued loan repayment after termination. Prevents loans from defaulting into taxable distributions.
- Automatic portability. Now live across major recordkeepers, it reunites forced-out small balances with the participant's new plan instead of leaving them stranded in an IRA.
Each is a modest change. Together they keep meaningful savings invested for your employees.
The Practical Takeaway
Judge your plan on design, cost, and retention, not on employee behavior.
What separates the best plans is a committee that benchmarked the costs, adopted the features that work, reviewed the results on a schedule, and documented all of it.
The harder question is whether that describes your plan or the plan your committee assumes it has.
Most committees believe their fees are reasonable and their design is current.
Fewer can point to the page in the minutes that proves it, and a committee that cannot produce a record of its decisions is in a weaker position than one that simply made a different call and wrote it down.
The Point Underneath All This
Strip away the statistics and this is about process and defensibility.
You cannot control markets, salaries, or what employees do with their money after they leave.
You can control whether design, costs, and outflows have been examined on purpose, and whether the committee could explain, at any moment and to anyone who asked, how the plan got where it is.
That explanation is what ERISA asks of a fiduciary.
From Knowing to Confirming
Knowing these fixes matter is the easy part.
Confirming they are in place, with the documentation to show it, is the real work.
Two paths close that gap: have an outside reviewer walk the plan through these benchmarks with you, or work through them internally and see where the plan scores. Both start from the same ten questions.
If You Want a Clearer View of Your Plan
First Hill Trust can walk your committee through a focused review of your plan's design, all-in costs, and outflow patterns, benchmarked against plans your size. Click here to schedule a brief plan design and fee review, or call (206) 625-1800.
Bring It to Your Next Committee Meeting
Sources
Vanguard, How America Saves 2026, workplace.vanguard.com/insights-and-research/report/how-america-saves-2026.html
Morningstar Center for Retirement and Policy Studies, 2026 Retirement Plan Landscape Report, morningstar.com/business/insights/research/retirement-plan-landscape
U.S. Department of Labor, Meeting Your Fiduciary Responsibilities, dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities
Important Disclosures
Accuracy and currency. Figures and legal descriptions in this article were verified against their cited sources as of the publication date. Law, regulation, and industry data change, and this article is not updated as circumstances change. Confirm current requirements with qualified counsel before acting.
Educational purpose only. Provided by First Hill Trust Company for general informational and educational purposes only. It is not legal, tax, accounting, investment, or fiduciary advice, does not constitute a recommendation regarding any plan, investment, strategy, or course of action, and does not consider any recipient’s specific circumstances. Consult your own qualified advisors before acting.
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