How to Reduce Retirement Plan Costs Without Compromising Employee Value

What makes a retirement plan valuable? Ask HR leaders and benefits managers, and you’ll hear a range of answers—employee retention, recruitment appeal, or helping employees secure their financial future. But one constant remains: the challenge of balancing costs while ensuring employees truly benefit. 

Designing an affordable retirement plan doesn’t mean sacrificing quality. With the right cost-control strategies in place, you can offer a competitive, high-value plan that attracts and retains top talent—without exceeding your budget. 

Why Retirement Plans Matter—and Why Costs Keep Rising 

Retirement plans are a cornerstone of modern employee benefits. According to the Society for Human Resource Management (SHRM), 94% of organizations consider them a key factor in attracting and retaining skilled employees. Yet, the costs of maintaining these plans continue to rise, putting pressure on HR teams to strike the right balance between affordability and value. 

Factors such as rising administrative fees, increasing employer match contributions, and market fluctuations can quickly inflate costs. On the other hand, cutting benefits too aggressively can backfire—lowering morale, reducing engagement, and even driving turnover. 

The key is not choosing between cost savings and value—but optimizing both. The following strategies will help reduce retirement plan expenses while ensuring employees continue to receive the benefits they need. 

Tiered Matching Contributions 

One of the most straightforward ways to manage retirement plan costs is through tiered employer matches. Instead of offering blanket percentages (e.g., matching 100% on employee contributions up to 6% of salary), organizations can implement a tiered structure, rewarding higher contributions with lower matching rates. For example: 

• Tier 1 – 100% match on contributions up to 4% of an employee’s salary 
• Tier 2 – 50% match on contributions between 4% and 6% 

This model encourages employees to save more for their future while reducing the employer’s overall matching expense. A tiered system shows your commitment to supporting employee retirement goals without significantly increasing plan costs. 

Key Tip: Communicate any changes clearly to employees, emphasizing that the adjusted structure still prioritizes their long-term financial well-being. 

Incorporate Profit-Sharing for Flexibility 

Profit-sharing plans offer an excellent way to create a retirement benefit that flexes with your organization’s financial performance. Unlike fixed benefits, profit-sharing contributions can vary from year to year, depending on what’s feasible for the budget.  

This approach works particularly well for businesses with fluctuating revenue, giving HR and benefits managers more control over yearly costs. On the other hand, employees still benefit from an employer-sponsored perk tied to the company’s success—a win-win situation. 

How It Works:

• Determine profit thresholds that trigger contributions. 
• Allocate contributions equitably across eligible employees. 
• Profit-sharing can be used as a supplementary benefit alongside 401(k) plans, giving employees more savings pathways. 

Profit-sharing plans demonstrate adaptability while ensuring that employee benefits remain competitive. 

Offer Diverse Investment Options 

When retirement plans focus heavily on employer contributions, costs can pile up quickly. To alleviate this, another strategy is to broaden investment options for employees. By offering a diverse mix of low-cost funds, target-date funds, and other affordable investment vehicles, you empower employees to optimize their retirement savings. 

Low-cost funds minimize employee investment expenses, maximizing their retirement balance over time. 

Regularly Audit Plan Fees 

Hidden fees can be one of the largest culprits of ballooning retirement plan expenses. For HR directors and benefit managers, periodic reviews of plan costs—including provider fees, recordkeeping fees, and investment management fees—should be a non-negotiable. 

Conducting a complete plan review every three to five years can uncover unnecessary charges, providing opportunities to renegotiate contracts or switch to lower-cost service providers. You may also want to consider whether all the services being paid for are still necessary. 

Proactive Steps:

• Benchmark your plan fees against industry standards to ensure you’re not overpaying. 
• Utilize third-party audit services to identify opportunities for cost reductions. 
• Reinvest any savings into the plan, making it more attractive to employees. 

Educate Employees to Maximize Value 

Retirement plan education is an often-overlooked cost-control measure that directly impacts long-term plan performance. Employees making more intelligent decisions about their contributions and investments reduces the strain on employer resources. 

Workshops, webinars, and one-on-one consultations are valuable tools to guide employees through topics like: 

• Optimizing contributions to maximize employer matches. 
• Diversifying investments. 
• Planning for life stages such as marriage, home-buying, or nearing retirement. 

Many service providers include training and education in their plan administration offerings. Check if these are available to your organization and take full advantage of them. An informed workforce is better equipped to manage their retirement and deepen engagement with the value of benefits offered. 

Build a Community of Financial Wellness 

A strong retirement plan is more than an individual perk — it becomes part of your organization’s larger financial wellness culture. Pair your plan with complementary benefits like financial coaching, student loan repayment assistance, or access to budgeting tools. These initiatives help employees reduce debt, improve financial literacy, and feel more confident about their monetary health. 

Creating a holistic approach allows HR teams to highlight the retirement plan as one essential component of broader financial assistance, spreading its perceived value to employees and likely increasing participation rates. 

Balancing Costs Without Losing Value is Possible 

Controlling the cost of retirement plans doesn’t have to mean skimming on benefits. You can maintain both affordability and quality through strategic approaches like tiered matches, profit-sharing, investment diversification, fee audits, and education initiatives. 

The secret is recognizing that retirement plans aren’t “one size fits all.” Tailoring your strategies to fit the unique needs of your workforce and financial objectives will deliver the best results for your organization. 

Want expert guidance for crafting or optimizing your retirement plan? At OpenPlan, we specialize in helping businesses balance affordability and employee value.  

Contact our team today, and together, we’ll create a retirement plan that works for everyone. 

This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.