A new report shows that average fund expenses in 401(k) plans are continuing a downward trend. The ICI recently released its annual analysis of the fees and found that the average expense ratio for equity funds in 2014 was 0.54%, representing 30% drop since 2000. Additionally, the average expenses paid by 401(k) investors for hybrid funds and bond funds saw declines over the same period of 24% and 28%, respectively.
The report suggests that the lower fees are indicative of a drop in fees in mutual funds generally, but that plan sponsors may also play a role. According to ICI, "cost-conscious plan sponsors also impose market discipline" and may choose to partly cover plan costs. Investors also benefit from large collective account balances that yield economies of scale and are not paying for the services of a financial adviser generally.
Overall, mutual funds remain the preferred investment within 401(k) plans with 63% percent of plan assets held in mutual funds in 2014, a number that has grown drastically from 9% in 1990. Of the $2.9 trillion of 401(k) plan assets invested in mutual funds in 2014, 60% was invested in equity funds, 25% in hybrid funds, 11% in bond funds, and 3% in money market funds. Looking at assets by share class, 87% of 401(k) plan assets were held in institutional or retail no-load share classes, up from 67% in 2000.