401(k) fund fees continue to fall

Fees for equity, hybrid and bond mutual funds held in 401(k) plans continued their long-term decline in 2017, according to a new report published by the Investment Company Institute, a trade group representing fund managers. The average asset-weighted expense ratio for equity mutual funds — the most commonly held fund type among 401(k) investors — fell 0.03% last year, to 0.45%, when compared with 2016. That represents a decline of 46% from the high for 401(k) equity-fund fees of 0.83%, set in 2003. Fees for bond funds and hybrid funds (which invest in a mix of equities and bonds) also fell slightly year-over-year. Overall, bond-fund fees are down 46% — to an average asset-weighted expense ratio of 0.33% — from their high in the early 2000s, and hybrid fees are down 30% from that time, with a current expense ratio of 0.51%. (More:​ How low can 401(k) advisory fees go?) The trend toward lower fund fees in 401(k) plans, which hold more than $5 trillion in assets, gels with a general move to lower fund costs experienced in the retail market. But 401(k) fund fees are still lower than those of their retail counterparts, partly because 401(k) plans can use their economies of scale to afford lower-cost share classes and 401(k) investors don't pay for the assistance of a financial adviser as frequently as retail investors, ICI said. Further, the use of index funds, which often come with a lower price tag than actively managed funds, has increased dramatically over the past decade-plus. Lawsuits that have targeted allegedly high investment management fees also have become more prevalent. Nearly 70% of 401(k) assets are held in mutual funds.