Study Looks at 401(k) Plan Costs

Sign of the season

The Investment Company Institute (ICI) looks at the various fees, expenses, and services associated with implementing and maintaining a 401(k) plan. The ICI report notes the following:

• 401(k) participants hold mutual funds at an expense ratio less than half of the general investing population (1.40% vs. 0.63%).
• The expense ratio for 401(k) assets in mutual funds has dropped from 0.74% to 0.63% since 1998.
• Employers with 401(k) plans typically hire service providers, which has a cost.
• Employers and employees usually share the cost of operating the plan.
• 401(k) plans are complex to operate due to numerous laws and regulations.
• 401(k) assets have grown from $385 billion in 1990 to over $3.6 billion today,more than half of which is invested in mutual funds.
  
• Typical 401(k) plan services may be administrative, participant- focused, or regulatory/compliance in nature.
• Service providers may be compensated via a variety of arrangements.

The full report ("The Economics of Providing 401(k) plans: Services, Fees, and Expenses: 2012") provides additional detail on these plan costs, as well as current and historical data on mutual funds in 401(k) plans.

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