The Best 401k Option Most Legal Organizations Have Never Considered
Every law firm and organization serving the legal community — including legal staffing firms, court reporters, legal technology companies, and others — is eligible to participate in the ABA Retirement Funds Program. Nearly 3,900 legal organizations have already adopted it, representing $7.7 billion in retirement plan assets and approximately 37,000 participants as of December 31, 2024. The client retention rate is 99 percent. And yet the majority of small legal organizations that would benefit most from this program are not in it.
That gap exists partly because the program does not advertise its most powerful feature. If you contact a representative and ask the right questions, you will learn something that should change how you think about your organization's retirement plan costs entirely.
How the Brokerage Account Changes Everything
The ABA Retirement Funds Program offers a self-directed brokerage option through the Schwab Personal Choice Retirement Account (PCRA). Participants can invest all assets in excess of the lesser of $2,500 or 5 percent of their account balance in the PCRA. Everything above that threshold can go into the brokerage account, with no upper limit.
That single feature eliminates all advisory, recordkeeping, administration, and custodial service fees on the assets held in the brokerage account. Those fees are embedded in the expense ratios of the program's core funds and apply only to core fund balances. A participant who keeps only the required minimum in the core funds pays service fees on a trivial dollar amount. The rest of their account sits in the PCRA, where they have access to more than 8,700 domestic and international mutual funds, individual stocks, bonds, ETFs, and CDs — with no service fees charged against those assets.
There is another consequence of the PCRA structure that deserves attention. Under most 401(k) arrangements, the advisor gets paid automatically from every participant account regardless of whether any individual participant ever uses the advisor's services. The fee comes out whether the participant calls the advisor once a year or never. The ABA program eliminates that arrangement entirely for assets held in the brokerage account. An outside advisor who wants to be compensated for their services must either come to a separate agreement with each individual participant who uses the brokerage account, or the firm must pay the advisor directly. That is how every other professional services relationship works. It is how 401(k) advisory relationships should work too — and it is how they work here.
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On trading costs: most trades in the PCRA are free or nearly free. U.S. exchange-listed stocks and ETFs traded electronically cost $0 per trade. No-load, no-transaction-fee mutual funds through Schwab's OneSource service are also $0 electronically — and that universe includes more than 3,800 funds. Transaction-fee mutual funds cost $49.95 per buy and $0 per sell when placed electronically. Broker-assisted trades of any kind carry a $25 service charge. For the vast majority of participants investing in index funds or ETFs, trading is effectively free.
What This Means in Dollar Terms
Consider a 10-participant plan with $2 million in assets — roughly the average plan size in the ABA program. A typical plan of this size pays approximately $15,000 per year in service fees. Those fees come directly out of participant retirement accounts. They are paid with after-tax dollars. The firm gets no deduction. And because fees are allocated in proportion to account balances, the partners — who hold the largest balances — absorb the largest share of those costs out of their own retirement savings.
Under the ABA program using the PCRA strategy, participant-level service fees drop to zero. The only remaining cost is the cross-testing administration fee, which for a 10-participant plan runs $1,000 per year. That fee is paid by the firm directly as a deductible business expense — not from participant accounts.
The comparison:
Annual Service Fees
Typical 401(k) arrangement: $15,000 from participant accounts
ABA Program with PCRA strategy: $0 from participant accounts + $1,000 to $3,000 firm-paid, tax-deductible
Annual participant-level savings: $15,000
Per participant savings: $1,500
Now consider what those savings mean compounded over time. The Department of Labor has long used a 7 percent annual return assumption to illustrate the long-term cost of fees. Applying that assumption here:
30-Year Compounded Value at 7%
$1,500 saved per participant per year — $141,700 per participant
$15,000 saved for the plan per year — $1,417,000 for the plan
That is $141,700 in additional retirement savings per participant — and $1.4 million more in the plan as a whole over this time period — simply by eliminating service fees that should never have been charged in the first place. And because those dollars remain in tax-advantaged retirement accounts, every dollar compounds tax-deferred, making the true benefit even greater than the nominal figures suggest.
The partners benefit most directly. Because service fees are allocated in proportion to account balances, the partners absorb the largest share of the $15,000 annual cost under a typical arrangement. Eliminating those fees protects the people with the most at stake. And when the firm pays the cross-testing fee at the employer level, it does so with pre-tax dollars, reducing the after-tax cost further while also reducing fiduciary liability — a plan sponsor who pays fees transparently at the employer level is in a demonstrably stronger fiduciary position than one whose costs are buried in fund expense ratios.
What Cross-Testing Is and When It Applies
Cross-testing is a plan design feature that allows employers to allocate profit sharing contributions disproportionately across employee groups rather than on a uniform pro-rata basis. It allows an organization to direct a larger share of the employer contribution to the principals or other targeted groups, subject to IRS nondiscrimination testing. It works best when the principals are older on average than other employees, because the actuarial testing that satisfies the IRS uses age as a factor.
The difference is material. Under a traditional pro-rata profit sharing formula, a 60-year-old owner and a 33-year-old employee both receive 16 percent of pay. Under a cross-tested design, the owner can receive 25 percent of pay while employees receive 5 percent — directing 87 percent of the total employer contribution to the owner versus 56 percent under the traditional approach.
Cross-testing is not required. Organizations that do not need it can use the program's standard plan design with no additional service fees. Organizations that want cross-tested design can retain their own outside administrator or use The Hilb Group, the ABA program's preferred vendor for this service. Hilb's annual administration fees are flat, transparent, and paid by the firm — not from participant accounts:
Eligible Participants — Annual Administration Fee
1 to 5 — $750
6 to 10 — $1,000
11 to 25 — $1,500
26 to 50 — $2,000
51 to 75 — $2,500
76 to 100 — $3,000
Over 100 — $3,000 + $10 per participant above 100
In addition to annual administration, Hilb charges $300 for custom plan document creation and $300 per required amendment. Consultation on optimal plan design and review of existing provisions is provided at no charge.
Cash Balance Plans as an Additional Option
For principals who want to shelter more income than a 401(k) or profit sharing plan permits, the program also offers cash balance plans. A cash balance plan is a defined benefit plan structured to look like a defined contribution plan — participants have hypothetical account balances that grow with fixed contributions and interest credits, payable as a lump sum at retirement or converted to an annuity.
The appeal for older, higher-earning principals is the contribution limit. While combined 401(k) and profit sharing contributions are capped at $70,000 annually, cash balance contributions can substantially exceed that depending on the participant's age — potentially exceeding $200,000 annually for participants in their late 50s and 60s. A cash balance plan paired with a 401(k) allows a senior partner to shelter significantly more on a tax-deferred basis than either plan alone would permit.
The trade-off is commitment. Cash balance plans require minimum annual employer contributions determined by an actuary, and organizations should expect to maintain the plan for at least five years. They are best suited to organizations with stable cash flow and a genuine need to accelerate retirement savings for principals. Cash balance administration fees run from $2,500 annually for plans with 1 to 10 eligible participants, scaling to $4,000 for 21 to 25 participants.
Who Is Running This Program
The ABA Retirement Funds Program is a not-for-profit Illinois corporation established by the American Bar Association in 1963. It has a full-time staff of four, including an executive director, and is governed by a board of more than ten attorneys serving in voluntary, unpaid capacity. The board meets quarterly and acts in a fiduciary capacity with respect to selecting and monitoring service providers.
Three financial services firms deliver the plan services. Mercer Trust Company serves as investment fiduciary, custodian, and trustee. Mercer maintains the investment policy, designs the fund lineup, and has over 45 years of experience providing investment solutions. Because Mercer serves as a full discretionary trustee, the program provides employers with the highest level of fiduciary protection available under ERISA. Participating organizations do not need to engage a separate 3(21) or 3(38) investment fiduciary — Mercer covers that responsibility entirely, further reducing the plan sponsor's liability exposure.
Voya Financial serves as full-service recordkeeper and administrator, handling payroll administration, loan processing, nondiscrimination and top-heavy testing, Form 5500 preparation, plan design consulting, and participant communications. Voya is one of the largest defined contribution plan recordkeepers in the country, serving approximately 39,000 U.S. employers. Charles Schwab provides the PCRA brokerage platform, giving participants access to the full Schwab investment universe and award-winning technology.
Service is where this program separates itself from the rest of the market. Every organization with more than one participant is assigned a dedicated personal representative — not a call center, not a rotating team, but a named individual who knows your plan. Employee turnover within the program's service teams at Voya, Mercer, and Schwab is exceptionally low, with an average tenure of more than ten years serving the legal community specifically. That continuity matters. The people who know your plan today will still be there next year.
The three providers operate under 80 combined service standards, some with financial penalty for noncompliance. That level of accountability is built into the program's structure, not offered as a marketing claim. The result is a 99 percent client retention rate — which is not a number you achieve by accident. It reflects what happens when a program is competitively priced, properly staffed, backed by award-winning technology, and structured to serve a specific professional community rather than the general market. For small legal organizations accustomed to being treated as an afterthought by large retirement plan providers, the contrast is significant.
This Program Wins on Every Count
The 401(k) market is structured so that small plans pay the highest service fees and receive the least scrutiny. Asset-based fees rise automatically as plan assets grow. Costs are embedded in fund expense ratios rather than invoiced. Partners absorb the largest share of those costs from their own retirement savings. And the administrative complexity of plan management falls on the firm administrator with little dedicated support.
The ABA Retirement Funds Program addresses every one of those problems. Participant-level service fees are eliminated through the PCRA strategy. The only plan cost is a flat, transparent cross-testing fee paid by the firm as a deductible business expense. Fiduciary coverage is the strongest available under ERISA. Every organization gets a dedicated personal representative, award-winning technology, and a proven service infrastructure built specifically for the legal community. The long-term compounding benefit of eliminating $15,000 in annual service fees is $1.4 million over 30 years at a 7 percent return.
For most small legal organizations, the question is not whether the ABA Retirement Funds Program is better than their current plan. The question is why they are not already in it.
To learn more, visit abaretirement.com or call 800.826.8901.