The average participant is paying less for their 401(k) than they were in 2009, at least as a percentage of assets, according to a new analysis.
In 2012, the average total plan cost was 0.91% of assets, down from 1.00% in 2009, according to the BrightScope measure of total 401(k) plan costs. Moreover, the average participant was in a lower-cost plan, with a total plan cost of 0.53% of assets in 2012, down from 0.65% in 2009. The average dollar was invested in a plan with a total plan cost of 0.39% in 2012 (down from 0.49% 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 BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 401(k) plans with less than $1 million in assets had an average total plan cost of 1.60% of plan assets in 2012, compared with 0.54% of plan assets for plans with $100 million to $250 million and 0.33% of plan assets for plans with more than $1 billion.
The report, published by the Investment Company Institute (ICI), a mutual fund industry trade group, and BrightScope, notes that one reason that larger plans tend to have lower fees is related to the greater share of their assets invested in index funds, which tend to have lower expenses than other types of investments. Additionally, the fixed costs associated with offering a 401(k) plan can be spread over more participants and a larger asset base with larger plans, lowering the total plan cost as a percentage of assets.
Since 2009, total plan cost has decreased on average by around 10 basis points whether measured on a plan, participant or asset–weighted basis. While most plan size groups saw declines in total plan cost between 2009 and 2012, the largest declines occurred for plans with less than $1 million in plan assets.
