![]() ![]() Thankfully, this isn’t all that hard to do. The good news (or silver lining): there are a few simple things you can do to lower your expense ratio: Really though, with high quality passive investments being so readily available, you should be able to select funds with closer to a 0.20% average expense ratio. Mutual fund share classes can also have an impact on the fund’s expense ratio, as some classes may carry additional fees - like the notorious 12b-1 fee. Actively-managed funds often have significantly higher fees than passively-managed funds. Much of the total expense ratio depends on the types of funds chosen by the plan sponsor or their advisor. So… why are 401(k) expense ratios are so high? ForUsAll clients of all sizes on our recommended fund lineup generally only pay 0.11%.Īll of this is to say that, though 401(k) expense ratios can be wildly different for different plans, with the average being 1.34%, most are paying way too much. In fact, the 401(k) Book of Averages found that a company with 10 employees could pay anywhere from 0.25% annually on the low end to 1.92% on the high end. In truth, costs can vary widely from plan to plan. Now naturally, these are averages, and your plan’s actual expense ratio could be quite a bit higher or lower. Here are the most recent average 401(k) expense ratios from the 401(k) Book of Averages. One of the first steps in getting low expense ratios is evaluating how your plan stacks up against others of similar size. Average 401(k) Expense Ratios - How Does Your Plan Compare? Truly, the last thing a company-sponsored 401(k) plan should do is incentivize employees to save elsewhere, like in an IRA. A study by Yale University showed that high fees may effectively negate the tax advantage of their company’s 401(k) for some young investors! We often say: high fees defeat the purpose of having a 401(k). Think of what that $545,812 could mean in your golden years. ![]() But if the same fee impact is phrased as “you’ll have half a million less in your savings” - it should set off some seriously loud alarm bells.Īnd it should - this is your retirement, after all. Hearing “your 401(k) expense ratio is 1.34%” probably doesn’t trigger panic sweats in the average plan participant. This means the plan provider takes 1% of the investor’s assets off the top, which nets out to a 6% annual return for the investor. Here’s a quick example of how fund expenses impact investor return:Ī fund’s expense ratio is 1% a year, and the fund reports an annual asset increase of 7%. However, for the purpose of this blog post, we’ll use the term 401(k) expense ratio to talk about only investment costs. The total expense ratio can cover the administrative fees, operating expenses, recordkeeping fees, management fees, and marketing (12b1) fees, as well as all other investment fees and expenses.Įssentially, the 401(k) expense ratio is the entire asset-based fee you and your participants pay for the plan - which, again, can include both investment costs AND recordkeeping costs. Your 401(k) expense ratio is the percentage of retirement fund assets that plan participants pay for their investments. Ready to get started? Let’s jump right in! ![]() Then we’ll walk you through the latest data on average fund fees, and end with insider tips sourced from industry experts on how you can lower fund fees for your plan.īy the end of this post, you’ll be well on your way to lowering your plan’s average expense ratio and saving you and your employees a lot of money. In this post, we’ll quickly break down what 401(k) expense ratios are and why they matter. If you find yourself asking any of these questions, not to worry - you’ve come to the right place! And one of the biggest reasons for this is because, for many plans the 401(k) expense ratios are way too high.īut if you’re reading this post today, you might be wondering: what the heck is a 401(k) expense ratio? What are participants paying on average, how does my plan stack up, and what can be done to lower these fees? Okay, let’s say this plainly: when it comes to 401(k) fees, a lot of participants are paying way too much. ![]()
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