Does the U.S. cap 401(k) fees? Not with one federal percentage limit

By Kaz · Verified 6 September 2026 · How this site checks figures

No. U.S. law sets no single federal percentage cap on 401(k) fees; ERISA requires plan fees to be reasonable for the services provided, and participant-directed plans must disclose them under 404(a)(5). The UK caps only the default arrangement of a qualifying workplace scheme, at 0.75% a year.

Two countries looked at the same problem — savers who never change the fund they were put into — and answered it in opposite ways. One set a ceiling on one arrangement. The other made the number public and made somebody legally responsible for it. The arithmetic below shows what the difference is worth.

Checked 6 September 2026

---

U.S. law does not set one federal percentage cap for 401(k) fees. ERISA requires plan fees to be reasonable, and participant-directed plans have specific disclosure rules. The Department of Labor says so in its own words in A Look at 401(k) Plan Fees: "Keep in mind that the law requires the fees charged to a 401(k) plan be reasonable rather than setting a specific level of fees that are permissible." The United Kingdom does set a number, 0.75% a year, but only on the default arrangement of a qualifying workplace scheme.

What the United States requires instead of a cap

Two disclosure duties and a fiduciary standard, and each has a stated scope. The Department of Labor asks employers to "Ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided". Reasonableness is judged against services received, not against a percentage written in a rule.

Under ERISA rule 404(a)(5), the recipients of the participant-level disclosure are "Participants and beneficiaries with the authority to direct their own investments in individual account plans". They must be given "the total annual operating expenses expressed as both a percentage of assets and as a dollar amount for each $1,000 invested... in a chart or similar format designed to facilitate a comparison", plus quarterly statements of what was "actually charged to or deducted from their individual accounts".

Under ERISA rule 408(b)(2), the duty falls on the service provider and the audience is the plan's fiduciaries: "Certain plan service providers must provide detailed information about the compensation, both direct and indirect, that they will receive for providing services to pension plans", and generally must do so reasonably in advance of entering into the contract or arrangement.

The enforcement edge is therefore the fiduciary duty: the people running the plan must conclude the fees are reasonable, and can be held to that conclusion. None of these rules requires the fee to be low. They require it to be shown to a named audience and make a fiduciary answerable for it.

Where the one cap in this comparison applies

0.75% a year of funds under management, on the default arrangement of a qualifying workplace scheme. Each of those words narrows the cap. Default means the arrangement a member is put into when they make no investment choice. Qualifying means a scheme the employer uses to meet its automatic enrolment duty. Workplace means it arrives through an employer, so a privately arranged personal pension is outside it.

Two limits follow from that wording. A member who moves out of the default fund into a self-selected fund moves outside the capped arrangement. And the cap is not a single flat percentage applied to whatever structure a scheme uses. In the Pensions Regulator's words: "If your scheme charges aren't calculated in this way, but are made up of a charge on members' funds plus a charge on contributions or a flat fee, the regulations specify how the cap applies to each element."

What the difference is worth, in money

Take a £50,000 pot with £5,000 a year added for 25 years at a 6% gross return. At a 0.25% annual charge it ends at £482,400. At 0.75% — the capped level — it ends at £439,700. At 1.50% it ends at £383,100. The money paid in is the same in each case: £50,000 at the start plus £5,000 a year for 25 years, which is £175,000.

Ending pot after 25 years at three annual charge levels

An illustration, not a forecast and not a typical outcome. Starting pot £50,000 plus £5,000 a year, an assumed constant 6% gross return, charge deducted from the return each year. No provider guarantees any return.

Source: This site's own arithmetic. Each year, add the contribution, then multiply by (1 + gross return − charge).

The gap between 0.25% and 0.75% is £42,700. The gap between 0.75% and 1.50% is £56,600. That second figure is roughly what the cap is worth, on these assumptions, to a member who would otherwise have been in a 1.50% arrangement — and nothing at all to one who would have been in a cheap arrangement anyway. The fee calculator runs that recurrence on a real balance, and why a percentage charge compounds this way is set out in how a 0.75-point difference in annual fees compounds.

How the UK cap connects to automatic enrolment

Automatic enrolment puts a worker into a pension without their choice in the matter. Under the GOV.UK rules for the 2026/27 tax year, as checked on 13 October 2026, the minimum total contribution is 8% of qualifying earnings, of which at least 3% must come from the employer, and contributions are calculated on earnings between £6,240 and £50,270 a year before tax.

The cap applies to the arrangement a member lands in by making no investment choice, which is the arrangement automatic enrolment fills. The cap therefore covers exactly the members who have not chosen.

The US sets no national default fund and no national fee level for 401(k) plans: each plan chooses its fund menu and its fees, and the participant's protection is the fiduciary who chose them plus the disclosure that shows the result.

Is a cap better than disclosure?

It depends on which failure is more likely, and the disagreement is genuine. The case for the US approach is that a ceiling becomes a target: it gives every scheme charging less a defensible reason to charge more, and removes the pressure to compete below the line. Disclosure has limits of its own: 404(a)(5) applies to participant-directed individual account plans, and 408(b)(2) to covered service arrangements.

The case for the cap is that disclosure only works on people who read disclosures. The 404(a)(5) chart is built for comparison, but it protects only the participants who open it. A capped default protects members who never open anything, because it applies without any action from them.

Neither argument settles the question alone: the cap protects the member who never looks, and disclosure protects the member who does, provided the plan is one that 404(a)(5) covers. A guide to what it costs covers the charges sitting underneath either regime.

So what do you do

If the statement is a US 401(k) and the plan is participant-directed, the 404(a)(5) disclosure should already have arrived, and a missing one is a written request to the plan administrator rather than a comparison. If the statement shows a UK workplace scheme and the member is still in the default arrangement, the annual charge should be at or below 0.75%, and a figure above that is a question to put to the scheme in writing. If the statement gives a percentage plus a separate contribution charge or flat fee, do not decide yet: ask which charge structure applies and how each element is treated, because the headline percentage alone will not tell you.

What to check next

For a US plan: the 404(a)(5) comparative chart, then the most recent quarterly statement, then — through the plan's fiduciaries — what the 408(b)(2) disclosure shows the service providers receiving. For a UK scheme: the annual charge statement for the specific arrangement the member is in, and confirmation of whether that arrangement is the default.

Frequently asked questions

Does the 0.75% cap apply to a SIPP?

No. A self-invested personal pension is not the default arrangement of a qualifying workplace scheme, so the cap does not reach it. The same is true of a personal pension arranged directly with a provider, and of a fund a workplace member has chosen instead of the default. There the charge is whatever the contract says.

Is 0.75% a good charge?

It depends on the alternative available to that member. On the example above, moving from 0.75% to 0.25% is worth £42,700 over 25 years, so the capped level is nowhere near the cheapest obtainable. Against a 1.50% arrangement it is worth £56,600. It is a ceiling, not a statement by the Regulator that the level is optimal.

If there is no cap, what stops a US plan charging anything it likes?

The fiduciary standard, tested against services. The Department of Labor's wording is that "the law requires the fees charged to a 401(k) plan be reasonable rather than setting a specific level of fees that are permissible", and that fees must be reasonable "in light of the level and quality of services provided". The number is not bounded in advance; the people who chose it are answerable for it afterwards.

Sources

• The quoted statement that the law requires 401(k) fees to be reasonable rather than setting a permissible level, and that fees must be reasonable in light of the level and quality of services provided: A Look at 401(k) Plan Fees, US Department of Labor. Checked 6 September 2026.
• The recipients of the ERISA 404(a)(5) participant-level disclosure — participants and beneficiaries with the authority to direct their own investments in individual account plans — and the 408(b)(2) duty on certain plan service providers to disclose direct and indirect compensation reasonably in advance of the arrangement: Reporting and Disclosure Guide for Employee Benefit Plans, US Department of Labor. Checked 6 September 2026.
• ERISA 404(a)(5) participant-level disclosure, including the percentage-of-assets and per-$1,000 chart and the quarterly statements: Final rule to improve transparency of fees and expenses, US Department of Labor. Checked 20 August 2026.
• UK charge cap of 0.75% a year of funds under management on default arrangements in qualifying workplace schemes, and the combination-charge wording: Cost and charge restrictions, The Pensions Regulator. Checked 13 October 2026.
• Automatic enrolment minimum total contribution of 8% of qualifying earnings, minimum employer share of 3%, and the qualifying earnings band of £6,240 to £50,270 a year before tax: Workplace pensions: what you, your employer and the government pay, GOV.UK. Checked 13 October 2026.
• The £6,240 to £50,270 band held unchanged for the 2026/27 tax year: Review of the automatic enrolment earnings trigger and qualifying earnings band for 2026/27, GOV.UK. Checked 13 October 2026.
• Ending pots of £482,400, £439,700 and £383,100, the gaps of £42,700 and £56,600 and the £175,000 paid in are this site's own arithmetic, from a £50,000 starting pot with £5,000 added a year for 25 years at an assumed 6% gross return. Calculated 20 August 2026.