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Expense Ratios for Certain 401(k) Investments Trending Lower

The expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000, according to a report from the Investment Company Institute (ICI).

In 2000, 401(k) plan participants incurred an average expense ratio of 0.77% for investing in equity funds. But by 2015, according to the ICI, that figure had fallen to 0.53%, a decline of 31%. At year-end 2015, 59% of 401(k) plan assets invested in mutual funds were in equity funds.

The report also notes that the expenses 401(k) plan participants incurred for investing in hybrid and bond funds also fell from 2000 to 2015 — by 25% and 38%, respectively.

The average expense ratio that 401(k) plan participants incurred for investing in equity mutual funds slipped from 0.54% in 2014 to 0.53% last year. Similarly, the average expense ratio that 401(k) plan participants incurred for investing in hybrid funds dipped from 0.55% in 2014 to 0.54% in 2015, while the average expense ratio that 401(k) plan participants incurred for investing in bond mutual funds fell from 0.43% in 2014 to 0.38% in 2015.

Fee Factors


The report says that numerous factors contribute to the relatively low expense ratios incurred by 401(k) plan participants investing in mutual funds, including:

  • competition among mutual funds and other investment products to offer shareholders service and performance;

  • plan sponsor decisions to cover a portion of 401(k) plan costs, which allow them to select lower-cost funds or share classes;

  • economies of scale, which large investors such as 401(k) plans can achieve; and

  • cost- and performance-conscious decision-making by plan sponsors and participants.

The report notes that 401(k) plan participants tend to be invested in lower-cost mutual funds. Moreover, at the end of 2015, 89% of mutual fund assets in 401(k) plans were held in institutional and retail no-load share classes, while the remaining assets were held in load share classes, predominantly in share classes that do not charge retirement plan participants a front-end load.


New sales and assets tend to be concentrated in lower-cost funds, providing a market incentive for funds to offer their services at competitive prices, according to the ICI. In a 2015 survey, 52% of plan sponsors indicated that they had replaced a fund in the last year due to poor performance.


The report notes that at the end of 2015, “retirement share classes,” or “R” shares, which include no-load and load structures and are sold predominantly to employer-sponsored retirement plans comprised 19% of mutual fund assets held in 401(k) plans, as they have since 2010. They amounted to only 9% of the total in 2006.