The 401k and the way it’s structured has taken some recent hits, with critics contending it’s complicated, expensive and the tax advantages just aren’t there.
But the cost of 401k investing, at least, continues its downward trend, according to new data from the Investment Company Institute.
ICI noted the cost of investing in equity and hybrid mutual funds through 401k plans, specifically, fell again in 2019. The report also shows that participants who invest in mutual funds in their 401k plans tend to hold lower-cost funds.
“The long-running decline in mutual fund fees in 401k plans demonstrates that plan sponsors and participants are cost-conscious investors in this vibrant, competitive marketplace,” Sarah Holden, ICI’s senior director of retirement and investor research, said in a statement. “Since mutual funds represent a significant share of assets held in 401k plans, this downward trajectory in fees benefits plan participants building their retirement nest eggs.”
Equity, hybrid expense ratios declined substantially
Mutual funds represented 63% of the $6.4 trillion in 401k plan assets at year-end 2019.
The average expense ratios that 401k plan participants incurred for investing in equity and hybrid mutual funds fell in 2019, while those for bond mutual funds increased slightly.
401k plan participants investing in equity mutual funds incurred an average expense ratio of 0.39% in 2019, compared with 0.42% in 2018 and 0.77% in 2000.
The average expense ratio that 401k plan participants incurred for investing in hybrid mutual funds fell to 0.46% in 2019, from 0.49% in 2018 and 0.72% in 2000.
The average expense ratio that 401k plan participants incurred for investing in bond mutual funds increased slightly from 0.34% in 2018 to 0.35% in 2019. However, this is down from 0.60% in 2000.
401k fund assets concentrated in lower-cost funds
In 2019, 401k plan participants incurred an asset-weighted average expense ratio of 0.39% for equity mutual funds, which was less than the industrywide asset-weighted average expense ratio of 0.52%. Further, this was about one-third of the industrywide simple average of 1.24% for all equity mutual funds offered in the United States in 2019.
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.
