How to Use Form 5500 Data to Benchmark 401(k) Fees Before Recommending a Rollover

As fiduciary advisors and compliance professionals, benchmarking 401(k) fees using Form 5500 data is a regulatory imperative under DOL’s PTE 2020-02 requirements. This due diligence forms the foundation for making defensible rollover recommendations, helping you uphold your fiduciary duty while reducing risk associated with prohibited transactions and potential DOL scrutiny.

By leveraging the detailed, publicly available disclosures from Form 5500, you can generate a comprehensive, audit-ready comparison of plan fees, expense ratios, and services versus IRA alternatives. This results in objective, well-documented recommendations—aligned with both your clients’ best interests and regulatory documentation standards.

Definition: What Is Form 5500 and Why Does It Matter?

Form 5500 is the annual reporting form that most employer-sponsored retirement plans file with the Department of Labor. These filings include critical fee components—direct administrative costs, fund expense ratios, indirect compensation, participant counts, plan assets, and service provider details—that enable precise benchmarking for rollover compliance.

• Regulatory anchor: PTE 2020-02 explicitly requires advisors to document a thorough comparison of fees, services, and investment options between the current plan and any proposed rollover destination.
• Fiduciary risk mitigation: Accurate benchmarking using Form 5500 filings is an industry best practice, central to defensible, evidence-based recommendations.

Why Advisors Must Benchmark Fees—PTE 2020-02 and DOL Context

Effective February 2022, PTE 2020-02 redefined the fiduciary process for all advisors making rollover recommendations involving compensation. Under this exemption:

• You must analyze and document whether a rollover is in the client’s best interest, focusing on costs, investments, services, and the availability of comparable alternatives.
• You must provide clear, written disclosure of the rationale and retain comprehensive records for at least seven years, ready for DOL or FINRA audit.
  

Form 5500 data underpins this documentation, ensuring that claims of excessive plan costs or superior IRA options are evidence-based and stand up to future regulatory review.

Step-by-Step Guide: Benchmarking 401(k) Fees Using Form 5500 Data

Step 1: Gather Client and Plan Information

• Record participant’s employment details, account balance, and retirement goals.
• Determine existing plan sponsor (employer) and type of rollover analysis: Plan-to-IRA, Plan-to-Plan, or IRA-to-IRA.
• Request the most recent plan Form 5500 or summary annual report from the participant or directly from the employer HR department.

Step 2: Access Relevant Form 5500 Filing

• Use DOL’s EFAST2 website, or leverage automated tools like Simple Advisor Tools to search over 500,000 plan filings instantly by company name.
• Extract key data points: administrative fees (per participant or asset-based), plan assets, number of participants, fund expense ratios, revenue sharing, and indirect compensation codes.
• Upload additional fee disclosures or input missing data manually as needed for accuracy.

Step 3: Conduct the Fee Benchmarking Analysis

• Compare plan fees with peer averages using plan size, industry, and participant counts as primary benchmarks.
• Assess the total cost structure: sum of administrative fees plus weighted average expense ratios.
• Document the breadth and nature of available services (investment options, advice, financial education tools).
• If possible, visualize key findings with clear tables or charts for client understanding and retention.

Fee Category	Typical 401(k) Range (Form 5500 Avg.)	IRA Benchmark
Administrative Fees	0.5%–2%	0.25%–0.75%
Fund Expense Ratios	0.8%–1.5%	0.1%–0.5%
Total All-In Fees	1.5%–3%+	0.5%–1.25%

For instance, if a $250,000 balance is paying a 3% all-in annual fee in the plan but would pay only 1% in an IRA with comparable investments and additional advisory services, the objective savings can be substantial. This defensible quantitative difference can easily be highlighted in reports generated with Simple Advisor Tools.

Step 4: Generate PTE 2020-02 Compliant Documentation

• Summarize findings in a client-ready report that includes all fee comparisons, service differences, and requisite disclosures.
• Ensure documentation includes justification for the recommended option (explaining why rollover is, or is not, in the client’s best interest).
• Incorporate client acknowledgment and maintain documentation for seven years as stipulated by PTE 2020-02.
• With Simple Advisor Tools, reports are formatted for audit-readiness in a matter of minutes, with all data and disclosures standardized for compliance teams.

Practical Example: Bringing the Method to Life

Imagine a 55-year-old client with a $300,000 balance in an employer’s 401(k) plan that reports 1.8% admin fees and 1.2% expense ratios (total 3%). Peer benchmarking shows comparable plans at 1.2% total cost, and IRA alternatives as low as 0.8% with greater investment flexibility and planning options. Using this process, an advisor can quantify the potential annual savings and clearly document how the recommended solution meets the client’s needs, regulatory standards, and fiduciary obligations.

Common Pitfalls and How to Avoid Them

• Outdated Data: Form 5500 reports are often delayed by 7 to 19 months. Cross-reference filings with any recent 408(b)(2) disclosures or RFPs provided by plan sponsors.
• Incomplete Fee Discovery: Do not overlook indirect compensation (such as revenue-sharing arrangements). Review Schedule H and related schedules for a full picture.
• Poor Peer Matching: Benchmark against plans of similar size and industry to avoid misleading comparisons.
• Documentation Gaps: Always include three alternatives and detailed sign-off language to satisfy DOL compliance and audit trails.

Best Practices for Defensible, Efficient Benchmarking

• Leverage automation wherever possible. As shown by Simple Advisor Tools, manual benchmarking commonly takes 2 to 3 hours per rollover. Automation reduces this to under 15 minutes without sacrificing accuracy or defensibility.
• Use tools that integrate Form 5500 search and fee analysis, provide side-by-side comparisons, and produce DOL-compliant, professional PDF documentation.
• Regularly review your analysis workflow to identify and eliminate steps that add time but not value. Simplified reporting and audit-ready documentation should be the goal for both solo advisors and compliance teams.
• Maintain clear, accessible records for every rollover recommendation for at least seven years.

How Simple Advisor Tools Establishes Compliance Confidence

As an industry leader, Simple Advisor Tools empowers independent RIAs, solo practitioners, broker-dealer teams, and compliance officers with a robust, DOL-aligned workflow for rollover analysis. The platform offers:

• Instant Form 5500 search across 500,000+ plans with direct pull of administrative, service, and investment data
• Automated side-by-side fee and service benchmarking vs. IRA and plan options
• Professional, audit-ready reports formatted to PTE 2020-02 disclosure standards
• Unlimited analyses, no sales call required, 14-day free trial with full access
• Scalable solutions for independent advisors and compliance teams, with features such as audit trails, multi-user management (for broker-dealers), and seven-year document retention

For a deeper dive into key documentation requirements and practical review steps, see: PTE 2020-02 Disclosure Automation: Sample Language, Required Fields, and an Advisor Review Checklist.

PTE 2020-02 Compliance Risks and How Automation Addresses Them

• Manual data gathering and fee analysis can take up to 2–3 hours per case and is prone to human error, omissions, and inconsistencies—each a potential compliance risk. Automation consistently includes required disclosures, alternative analyses, and client acknowledgments.
• Audit-ready reports reduce the risk of documentation gaps that could lead to regulatory penalties or loss of exemption under PTE 2020-02.
• Tools like Simple Advisor Tools offer time savings and regulatory peace of mind, freeing up compliance staff to focus on higher-value oversight.

Frequently Asked Questions: Benchmarking with Form 5500