Revenue Sharing in 401(k) Plans

by Chris Tobe, CFA, CAIA

401(k) Revenue sharing is a scheme that is sold to 401(k) plans sponsors who are too cheap to pay the administrative costs out of company funds, and thus are willing to trick participants into paying for it by an increase in fees in high-cost mutual funds and even higher cost annuities.

Heavy industry lobbying has kept this practice barely legal.  However, I see Revenue sharing alone as a sign of a fiduciary breach since I have never seen it documented correctly, which turns into a shell game that increases fees, which has been confirmed in a 2021 study by experts from the Federal Reserve and leading Universities.  Higher fees are not associated with better performance; to the contrary, “The future performance of revenue-sharing funds is weaker than that of non-sharing funds.  The bulk of the under-performance is driven by higher fees, though revenue sharing funds display lower performance even after accounting for fees.[i]

Revenue sharing does not hold up during litigation and this has been confirmed by Fiduciary Liability Insurance industry which put much higher litigation risk on plans with revenue sharing and either denying coverage or raising rates significantly. [ii]

There is no reason to go through the complicated non- transparent
contortions of revenue sharing record-keeping if there is nothing to gain.  In some cases, the rebates may be delayed, giving the float on the money.  It is also unclear where rebates go if a participant leaves or transfers out of the fund.  There is little or no accountability as the recordkeepers has unlimited ways to divert these rebates toward administrative expenses they set and control.

There are other forms of hidden revenue sharing in and out of 401(k)s such as shelf fees that firms like Wells Fargo require a manager to pay over $500,000 to just be considered. [iii]

The burden is on the plan and the recordkeeper to provide a full and transparent accounting of the entire revenue sharing process which we have not seen    Revenue sharing will continue to be a litigation magnet.

[i] Pool, Sialm, and Stefanescu, Mutual Fund Revenue Sharing in 401(k) Plans, May 14, 2021,  available at:



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