Thanks in part to competitive pressures, anyone with a 401(k) plan paid lower fees last year than investors in either an equity or bond mutual fund outside of a retirement plan, the Investment Company Institute said.
The limited role of professional financial advisers in these plans also has long been a big factor in the difference in fees, a point that the fund manager trade group mentioned in its latest report.
The organization, on the other hand, didn’t address new disclosure rules that also have helped bring down fees in 401(k) and other retirement accounts.
The average expense ratio for equity mutual funds offered in the United States in 2013 was 1.37 percent, the group said. Those who invested in equity mutual funds in 401(k) plans, though, paid an average of 0.58 percent, down from 0.63 percent in 2012.
According an ICI report titled “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2013,” retirement plan participants generally invest in lower-cost funds that are chosen by their plan sponsors. Mutual funds accounted for 63 percent of 401(k) plan assets last year, it said.
Sponsors regularly evaluate the performance of their plans’ investments and fees. In 2012, 47 percent of plan sponsors indicated that they had replaced a fund in the last year because of poor performance, ICI noted in its report.
“This tendency on the part of investors sets up a competitive dynamic within the fund industry, as funds strive to provide ever-better services at even more competitive prices,” Sean Collins, ICI senior director of industry and financial analysis, said in the report.
Fees that 401(k) plan participants paid for hybrid mutual funds also fell, declining from 0.60 percent in 2012 to 0.58 percent in 2013, while bond mutual fund fees dropped from 0.50 percent in 2012 to 0.48 percent in 2013.
Fees that 401(k) plan participants pay for investing in mutual funds have consistently declined since 2000, when the average expense ratio was 0.77 percent. Last year’s 0.58 percent cost represents a 25-percent decline from 2000 figures.
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