10 Year Analysis of 58,000 Corporate 401(k) Plans Reveals Widespread Fund Underperformance and Overpayment on Fees

Abernathy Daley 401k Consultants’ first of its kind study identified potential conditions found across 401(K) Plans, creating a bevy of legal and compliance risks

Abernathy Daley 401k Consultants (“Abernathy-Daley”), a consultancy in 401(k) plan administration and employee education who operates as a subsidiary of The Abernathy Group II Family Office, today released the first edition of its Underperforming, Overpriced Funds in U.S. Corporate 401(k) Plans Report. The study provides plan sponsors, regulators, litigators, and employees with the first large-scale analysis of retirement plan fund underperformance and overpayment rates.

Using fund performance data from 2015-2025, Abernathy-Daley found that among approximately 58,000 corporate 401(k) plans:

- More than 99% of all plans contain at least one fund with a cheaper, higher-performing alternative available to plan participants over a period of three, five, and 10 years.

• More than 94% contain at least three such funds
• More than 85% contain at least five such funds

- More than 70% contain at least 10 such funds over three- and five-year periods

- More than 40% contain at least 10 such funds over a period of 10 years.

“This study found that the defined contribution industry is plagued by a direct misalignment between the plan participants’ best interests and those of the plan sponsors, administrators, and recordkeepers overseeing the plans,” said Steven Abernathy, CEO of Abernathy-Daley. “Our previous proprietary research on plan benchmarking and ‘red flag’ rates foreshadowed that most funds were overpriced and underperforming, but the ensuing data is astonishing; it reveals a national retirement plan crisis.”

Research Methodology

Abernathy-Daley’s analysis is based on a comprehensive review of 58,300 U.S. corporate 401(k) plans that filed Schedule H of Form 5500 between 2015 and 2025. These filings included verified investment positions with detailed information on fund selections, expense ratios, and historical performance data across three-, five-, and 10-year periods. The dataset represents a statistically significant subset of the more than 799,000 corporate retirement plans submitted during the period and is broadly reflective of national retirement plan trends.

To determine whether a fund was both overpriced and underperforming, researchers analyzed each fund’s performance against a comparable peer group benchmark and identified lower-cost alternatives within the same investment category (e.g., Large-Cap Growth). A “cheaper, better-performing" fund was defined as an alternative option with a lower expense ratio (≤0.50% for passive funds, ≤0.75% for active funds) and superior returns over three-, five-, and 10-year periods. To ensure methodological rigor, only plans with complete, verifiable fund data were included, while funds lacking sufficient benchmark or fee information were excluded from the final sample.

The study's findings coincide with increased scrutiny of 401(k) plan performance and fiduciary practices following high-profile court cases such as Anderson v. Southwest Airlines Co., where a lawsuit was brought due to a singular fund. Over a nine-year period, the actively managed mutual fund in question lagged its benchmark by more than 25%, charging 64 times more in fees than its comparable benchmark.

“Underperformance and excessive fees are ingrained into the corporate 401(k) plan ecosystem, yet these likely reflect the ‘well-functioning’ plans,” continued Abernathy. “Our study analyzed large corporations with extensive documentation. Their employees are losing retirement savings, and corporate plan sponsors will likely face more frequent legal challenges if nothing changes.”

Key Recommendations

“This data stands on its own, but we hypothesize that the results are due to a mix of fiduciary complacency, inertia overruling replacing badly performing funds, and inherent conflicts of interest from the plan advisors meant to be helping employees,” said Matthew Daley, president of Abernathy-Daley. “Overpriced funds are likely kept in plans due to many plan advisors, administrators, and recordkeepers benefiting from revenue-sharing agreements and receipt of fees.”

Plan sponsors should consider the following actions to improve their 401(k)-plan performance, reduce fiduciary liability, and better serve plan participants:

- Eliminate Revenue-Sharing Arrangements: Realign plan advisor incentives in favor of the plan participant while reducing fiduciary and legal liabilities.

- Implement Fee Caps: Limit expense ratios for all 401(k) investment options, as proposed by the Retirement Savings Modernization Act.

- Enforce Passive Default Options: Widespread academic research demonstrates that low-cost, passively managed funds outperform high-cost active alternatives.

- Mandate Annual Plan Benchmarking: Plan sponsors and administrators must benchmark their plan selection funds yearly and replace funds underperforming their category median over three to five years.

- Increase Personalized Education: All employees should understand the risks and steps necessary to reach retirement goals.

“Plan sponsors and employees need to know that overpaying for underperformance is unacceptable. Lower-cost, higher-yield alternatives are readily available, and fixing your plan’s fund selection will make an invaluable impact on each plan participant's retirement savings outcomes,” Daley added.

The complete report is available as a free download here.

About Abernathy Daley 401k Consultants

Abernathy Daley 401k Consultants is a 401(k) plan administration, research, and employee education consultancy sponsored by The Abernathy Group II Family Office.

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