The cost of investing in a 401(k) plan dropped again in 2014, according to the Investment Company Institute.
Specifically, fees on what a report by the ICI calls "long-term mutual funds," which include equity, fixed-income, and hybrid allocations, were cheaper last year than in 2013, continuing a trend the trade group has tracked since 2000.
Much of the cost efficiencies participants are experiencing are owed to continued and wider adoption of lower-cost funds.
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At year-end 2014, 401(k) plans held $4.6 trillion, 38 percent of which were held in equity funds.
Participants in workplace plans have a significant advantage to the mutual fund consumers in the retail market, ICI data shows.
Last year, the average expense ratio for an equity fund in the retail market was 1.33 percent.
But for 401(k) participants it was 0.54 percent, or less than half the average cost in the retail market.
Since 2000, 401(k) participants have seen a 30 percent decline in the cost of the average equity mutual fund, which was 0.77 percent of assets invested at the turn of the century.
The cost of hybrid and bond funds fell by 24 and 28 percent, respectively, since 2000.
In 2014, the average cost of a bond fund was 0.43 percent, down from 0.48 percent the previous year.
Sean Collins, ICI's director of financial analysis, suggested the downward trend is the result of increased completion among money managers and fund companies.
"Funds are striving to provide not only better services, but also lower prices, to the benefit of mutual fund investors saving for retirement in 401(k) plans," said Collins in a statement.
Of all the 401(k) assets in equity funds in 2014, 45 percent were invested in funds with expense ratios less than 0.50 percent.
The ICI's mission is to represent the interests of mutual fund providers. At the end of 1990, mutual funds' share of 401(k) assets was 9 percent. By the end of 2014, mutual funds claim 63 percent of 401(k) assets.
Most 401(k) assets are invested in shares of no-load mutual funds, meaning participants do not pay an upfront, or back-loaded fee for investing in the funds.
All told, 87 percent of assets in plans are invested in no-load funds, about half in retail class shares, and half in institutional-class shares, according to the data.
Over the past decade, asset managers have responded to mounting attention of sponsors' cost-control requirements by creating a new share class of mutual funds, the "R" share, or the "retirement share class."
They include both no-load and loaded funds, but the latter tend to waive the buy-in requirement for participants in 401(k) plans.
At the end of 2014, R shares, which are specifically designed for workplace-sponsored plans, held 19 percent of mutual fund assets in 401(k) plans, according to the ICI.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
