It’s more of the same—and that’s good.
The cost of investing in mutual funds through 401k plans fell again in 2016, according to new research from the Investment Company Institute (ICI).
The report matches recent Morningstar research that finds investors paid less on average in fund expenses in 2016 than ever before, as assets continue to flow into lower-cost index mutual funds, ETFs, and institutional share classes.
Mutual funds are, of course, a major component of the 401(k) investment landscape, comprising $3 trillion of the $4.8 trillion in 401k plan assets at year-end 2016.
The average expense ratios that 401k plan participants incurred for investing in equity, hybrid, and bond mutual funds each fell in 2016 for the seventh straight year.
The declines mark a continuation of a long downward trend. Since 2000, expense ratios that 401k plan participants incurred for investing in equity, hybrid, and bond mutual funds have decreased by 38 percent, 26 percent, and 43 percent, respectively
For equity mutual funds, 401(k) plan participants incurred an average expense ratio of 0.48 percent, compared to 0.51 percent in 2015. The average expense ratio that 401k plan participants incurred for investing in hybrid mutual funds fell to 0.53 percent in 2016, from 0.54 percent in 2015. And the average expense ratio that 401k plan participants incurred for investing in bond mutual funds fell to 0.35 percent in 2016, from 0.38 percent in 2015.
The study, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016,” also shows that participants who invest in mutual funds in their 401(k) plans tend to hold lower-cost funds.
“Our analysis of the fees that 401(k) plan participants pay to invest in mutual funds shows the continuation of an impressive trend of declining expense ratios since 2000,” Sean Collins, ICI’s senior director of industry and financial analysis, said in a statement. “This downward trajectory, which is a boon to retirement savers, is driven by competition among funds and investors’ keen awareness of fees, among other factors.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.