401(k) Plan Fees Continue to Crater

About to bottom out?

About to bottom out?

Lower investment fees overall helped reduce 401(k) fees (again) in 2016.

“Our data shows 401(k) fees declined in all 16 market segments we track,” Joseph W. Valletta, co-author of the 401(k) Averages Book, said in a statement. “In addition to total plan costs declining, we saw an across-the-board reduction in 401(k) investment fees.”

The average total plan cost for a small retirement plan (defined as 100 participants and $5 million in assets) declined from 1.28 percent to 1.25 percent over the past year, while the average total plan cost for a large retirement plan (defined as 1,000 participants and $50 million in assets) declined from 0.97 percent to 0.96 percent.

Smaller plans still pay more than larger plans

Reflecting economies of scale, the average cost for a micro plan (10 participants and $500,000 in assets) is 1.85 percent.

“Although 401(k) fees have been declining, if you work for a small company you’re probably paying higher fees in your 401(k) plan,” added co-author David Huntley. “Even with small companies paying more attention to their plan fees it’s still more costly to deliver the services to a small number of participants.”

Wide range between low and high cost providers

Valletta noted the 401(k) marketplace “has seen great changes, ranging from comprehensive 408(b)(2) fee disclosure to the delayed fiduciary rule.”

“The good news is that all these actions have brought a heightened awareness to fees. The bad news is the range between the high cost and low cost providers is still wide.”

Their data shows the range between the high and low total plan costs on a small plan is .46 percent to 1.69 percent, while a large plan is 0.28 percent to 1.21 percent.

Published since 1995, the 401(k) Averages Book is claims a non-biased, comparative look at 401(k) average cost information. It’s designed to provide retirement plan advisors, employers and financial professionals with 401(k) cost information to determine if their 401k plan costs are above or below average.

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