401(k)s Keep Getting Cheaper

Data shows that while participants in larger plans clearly benefit from scale, some small plans managed to pay significantly less in costs than others: costs for plans in the $1 million to $10 million segment ranged widely, from 68 basis points to 153 basis points.

And that suggests some plans may be benefiting from a fiduciary level of plan advice, and some may not.

One primary source of total plan costs is the expense ratio participants pay on investments like mutual funds and target date funds—recordkeeping, administrative and advisory costs account for other components of total plan expenses.

The average expense ratio for a mutual fund offered in a 401(k) plan of any size was 54 basis points, a steady and significant decline from the average of 74 basis points in 2009, when the Great Recession had collapsed 401(k) account values. That data point provides a reminder of the advantages of participating in a 401(k) plan. Investors in the general retail market pay an average of 70 basis points for their shares of mutual funds.

The all-plan average for target date funds was 56 basis points—the smallest plans averaged 77 basis points for managed funds, while participants in mega plans paid an average of 48 basis points for shares of target date funds.

Indexed mutual funds averaged a cost of 13 basis points for all plans—ranging from 10 basis points to 26 basis points, the larger plans of course paying less.