The expenses that 401(k) plan participants incurred for investing in long-term mutual funds — which include equity, bond and hybrid funds — declined in 2012, consistent with the downward trend of the past decade and a half, according to a just-released report by the Investment Company Institute.
The report, The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2012, found that plan participants holding mutual funds tend to invest in lower-cost funds. In 2012, the average expense ratio on equity funds offered for sale in the United States was 1.4 percent.
401(k) plan participants who invested in equity mutual funds paid less than half that amount, 0.63 percent, the study found. Expenses paid by 401(k) investors were also lower than the asset-weighted average expenses for all equity fund investors (0.77 percent).
Recommended For You
"Our research bears out the fact that 401(k) plan participants investing in mutual funds tend to hold lower-cost funds," said Sean Collins, ICI's senior director of industry and financial analysis, in a statement. "As our study notes, this provides a market incentive for funds to offer their services at competitive prices. In addition, employers, as 401(k) plan sponsors, consider a range of factors when selecting investment options for the 401(k) plan, including performance, services, funds' investment objectives, and, importantly, cost."
Added Collins: "Plan sponsors are under competitive pressure to include in the plan menu funds that are responsive to participants' desire for quality funds at a reasonable cost."
For the last decade and a half, the ICI report notes that the costs 401(k) plan participants have incurred for investing in long-term mutual funds have declined.
Andrew Miller, director of retirement and investor services for the Principal Financial Group, told AdvisorOne in an email message that the ICI's report "validates one of the advantages of employer-sponsored plans: participants of all incomes have access to competitively priced mutual fund options they may not be able to access outside of the plan. There are no minimums for participants in 401(k) plans."
Miller adds that "while fees are important, the most effective way to evaluate their reasonableness is in the context of all the services offered to the plan and participants. The report emphasizes the valuable role of plan sponsors as fiduciaries in selecting and monitoring investments as well as other plan services that meet the needs of their employee demographics. As fiduciaries, they are charged with making sure fees are reasonable, another key advantage to employer-sponsored plans."
In 1998, 401(k) plan participants incurred expenses of 0.74 percent of the 401(k) assets they held in equity funds, the ICI report states. By 2012, that had fallen to 0.63 percent — a 15 percent decline. The expenses 401(k) plan participants incurred for investing in hybrid and bond funds have fallen even more, by 19 percent and 23 percent, respectively, from 1998 to 2012.
In line with the trend in recent years, the average expense ratio 401(k) plan participants incurred for investing in equity funds declined from 0.65 percent in 2011 to 0.63 percent in 2012, the study found.
Similarly, expense ratios that 401(k) plan participants paid for investing in hybrid funds fell from 0.61 percent in 2011 to 0.59 percent in 2012. The average expense ratio 401(k) plan participants incurred for investing in bond mutual funds dropped from 0.52 percent in 2011 to 0.50 percent in 2012.
Moreover, the study found that more than half of the $3.6 trillion invested in 401(k) plans at year-end 2012 — or $2.1 trillion — was invested in mutual funds. Of the $2.1 trillion in 401(k) assets invested in mutual funds, 55 percent was in equity funds, 26 percent in hybrid funds, 15 percent in bond funds and 5 percent in money-market funds.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
