What is typically the most significant defined contribution plan cost for plan sponsors?

The most significant defined contribution plan cost for plan sponsors is often employer contribution expenses. In a defined contribution plan, such as a 401(k) plan, employers typically match a portion of the contributions made by employees. This matching can represent a substantial financial commitment, particularly when the employer offers generous matching rates or contributions.

Employers must budget for these expenses as they directly impact the overall cost of providing the retirement plan to their employees. While administrative costs, investment management fees, and employee education expenses are also important considerations, they usually do not reach the level of financial impact that employer contributions do. This is especially true in plans where employer matching is a key benefit to attract and retain employees, making employer contribution expenses a critical area of focus for plan sponsors when managing the costs associated with defined contribution plans.