Investment Company Institute: 401(k) plans rich in low-cost mutual funds

Low-cost mutual funds make up most of the assets in 401(k) plans, according to a study released yesterday by the Investment Company Institute, a Washington-based industry trade group. Nearly half of the $2.3 trillion in 401(k) assets were invested in mutual funds at the end of 2008, the report found. And the majority of those assets, or 78%, were invested in equity mutual funds. Of the assets held in stock funds, 77% were invested in funds that had an expense ratio of less than 1%. Some of the funds had lower expenses, with 28% of assets in funds that had expense ratios lower than 0.5%, the report said. “A number of factors contribute to the relatively low fees paid by 401(k) plan participants, including intense competition among mutual funds, other investment providers and service providers, plan sponsors’ decisions to cove some plan costs, and the economies of scale,” Sarah Holden, senior director of retirement and investor research at the ICI and co-author of the report, said in a statement. In the study, the 401(k) investors tended to own funds that had lower turnover rates. The average turnover rate for the stock funds was 50%, which was lower than the industry average of 59%, the ICI reported. Most of the assets in stock funds, or 79%, were invested in funds with no load — or sales — charges. While the remainder was invested in funds with loads, these funds typically waive the loads for retirement plan participants, ICI noted in the statement.