An ICI Review of the Economics of Providing Retirement Plans Bookmark

While the Department of Labor has delayed the implementation of new fee disclosure rules about fees charged to plans and participants, it may be useful to refer to the recent report "The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2009" published by the Investment Company Institute (ICI), a national industry group representing companies offering mutual funds, ETFs, and unit investment trusts (UITs). Members of ICI manage assets of $12.74 trillion and serve over 90 million shareholders. As the title suggests, this report offers research insights into the costs associated with 401(k) plans. You may find the information also relevant to similar plan arrangements.
Key Findings
  • Employers and employees generally share the costs of operating 401(k) plans.
  • More than half of the $2.8 trillion in 401(k) assets at year-end 2009 was invested in mutual funds, primarily in stock funds. Mutual funds are required by law to disclose information about fees and expenses and portfolio turnover.
  • 401(k) investors in mutual funds tend to hold lower-cost funds with below-average portfolio turnover. Both characteristics help to keep down the costs of investing in mutual funds through 401(k) plans.
  • Expense ratios of stock funds and bond funds averaged slightly higher in 2009, compared with 2008. The asset-weighted average expense ratio paid by 401(k) investors on their stock funds rose 3 basis points to 0.74 percent after having declined in the previous five years.
  • Money market fund expense ratios declined in 2009. The asset-weighted average expense ratio paid by 401(k) investors on their money market funds fell 2 basis points to 0.36 percent.
Read the details of the report at the ICI site.

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