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PERSONNEL MATTERS: 401(k) mutual fund fees continue to drop

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By Robert Steyer, Crain News Service

CHICAGO (July 16, 2014) — Average fees for equity mutual funds held in 401(k) accounts fell to 58 basis points last year, down five points from 2012, said a report by the Investment Company Institute (ICI) published July 14.

Average equity mutual fund fees have fallen steadily since the 74-basis-point level in 2009, said the report, describing results that are based on average weighted expenses. The report, which excludes mutual funds available as investment choices in variable annuities, uses data from ICI and Lipper.

The lower fees are due to greater cost-consciousness by defined contribution (DC) plan executives seeking to negotiate better deals with providers, Sarah Holden, ICI’s senior director for retirement and investor research, said in an interview. Competition among providers also played a role in lower overall fees, she said.

The ICI report shows that no-load mutual funds—both institutional and retail share classes—continue their growing influence among 401(k) plans. Last year, they accounted for 86 percent of mutual fund assets in 401(k) plans, up from 81 percent in 2010.

Average fees for hybrid funds—which combine equity and fixed-income components—have dropped steadily to 58 basis points last year from 68 basis points in 2009, the ICI report said.

Average fees for bond funds declined steadily to 48 basis points last year from 55 basis points in 2009. The hybrid and bond fund numbers, reflecting a weighted average expense ratio, exclude mutual funds as available as investment choices in variable annuities as well as tax-exempt bond funds.

The ICI report also said mutual funds accounted for 63 percent of 401(k) plan assets last year. Other investments include guaranteed investment contracts, company stock, collective investment trusts, separate accounts and self-directed brokerage accounts.

This report appeared on the website of Pensions & Investments magazine, a Chicago-based sister publication of Tire Business.

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