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The secret to lower 401(k) fees

It's best if 401(k) plan sponsors live by this simple creed: When it comes to fee, sometimes you get what you pay for.

By Christopher Carosa | Updated on July 02, 2012

The challenge for plan sponsors is to distinguish between which fees add value and which fees can be cut. We certainly don’t want to reduce fees in such a manner that would reduce the effectiveness of a retirement savings plan.

For example, one way to reduce fees is to reduce mutual fund expense ratios by offering only index funds (whose expense ratios are typically, but not always, a tenth of that of actively managed funds). Sounds like a no-brainer, right? Well, in the first decade of this century (the so-called “lost decade”), index funds were flat – gaining or losing a little depending on which index you chose. On the other hand, the average actively managed fund, according to Lipper, grew substantially, in some cases by more than 50 percent.

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Christopher Carosa

Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).

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