In the aftermath of the attack by the PBS “Frontline” program on the 401(k) system, which focused on fees and charged that plan participants are being taken advantage of by Wall Street and advisors, ICI has released the results of a study showing that participants in 401(k)s tend to pay less for their mutual funds than the average investor.
In 2012, 84% of 401(k) plan participants paid less than 1% in mutual fund fees, with only 2% paying more than 1.5% in fees, ICI says. “Frontline” used 2% in their example of how fees can diminish account balances. The average asset weighted expense ratio for 401(k) participants was 63 BPs, compared with 77 BPs for the industry.
While participants do bear the brunt of plan expenses, by pooling their assets in a plan they can get better deals in the form of lower share classes. And though some plans and advisors do a better job in selecting and monitoring funds, few would argue that participants do a better job on their own in picking and monitoring investments or advisors. ICI points out that fees are not the only criterion for success, since they can vary depending on plan features investment type — both of which can lead to better outcomes.
