A new study finds that not only did the average total plan cost decline over the past five years, but the average participant was now in a lower-cost plan.
In 2014, the average total plan cost was 0.97% of assets, down from 1.02% in 2009, according to The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2014.
The average participant was in a lower-cost plan, with a total plan cost of 0.55% of assets in 2014 (down from 0.65% in 2009), while the average dollar was invested in a plan with a total plan cost of 0.39% in 2014 (down from 0.47% in 2009). BrightScope’s total plan cost includes administrative, advice, and other fees from Form 5500 filings, as well as asset-based investment management fees.
According to the report, this pattern occurs for a couple of reasons. First, participants and assets tend to be concentrated in larger plans. For example, although only 1.8% of audited 401(k) plans in the BrightScope Defined Contribution Plan Database have more than $1 billion in plan assets, nearly 40% of participants are in these plans, and they hold nearly 60% of all 401(k) assets, much as it does in the DOL 401(k) universe.
The report notes that mutual fund expense ratios in 401(k) plans tend to be lower in larger plans and have trended down over time. For example, the average asset-weighted expense ratio for domestic equity mutual funds was 0.82% for plans with $1 million to $10 million in plan assets, compared with 0.39% for plans with more than $1 billion in plan assets. Mutual fund expense ratios also tended to decrease in 401(k) plans between 2009 and 2014.
Note: Total plan cost includes asset-based investment management fees, asset-based administrative and advice fees, and other fees (including insurance charges) from the Form 5500 and audited financial statements of ERISA-covered 401(k) plans. When plans use products registered under the Investment Company Act of 1940 — such as mutual funds — expense data from Lipper are used to calculate fees. When plans use non-1940 Act products, such as collective investment trusts and pooled separate accounts, BrightScope uses an algorithm to estimate investment management fees.