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401(k) Fees Are Coming Down

The fees associated with 401(k) plans are falling, according to a new study by BrightScope Inc. and the Investment Company Institute.

Looking at plans that existed from 2009 to 2012, the total costs decreased on average by around 10 basis points, with the largest decline coming in plans with less than $1 million in plan assets. The researchers identified four key factors for why costs are coming down.

 

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“[The decrease] can be attributed to the rising awareness by both plan sponsors and plan participants of fees and their effect on 401(k) savings,” said Brooks Herman, head of data and research at BrightScope, in a statement.

Sarah Holden, ICI’s senior director of retirement and investor research, added that the scale of plans is also a factor, as bigger plans can spread the costs among a larger base. There is also a general downward trend of fees associated with mutual funds, which account for 46 percent of assets in 401(k) plans.

 

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The fourth factor is an increased use of index funds, which tend to have even lower fees.

“By 2012, nearly a quarter of the assets in 401(k) plans were invested in index funds,” Holden said. “That’s up from 17 percent in 2006 and 23 percent in 2012.”

The study focused on 35,500 defined contribution plans, nearly all of which were 401(k) plans with 100 or more participants. Researchers also found that more than four out of five employers were matching employee contributions to plans, and that the range of investment options in 401(k) plans was increasing. 

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