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Average 401(k) Expense Ratio Declines

According to an annual report by the Investment Company Institute (ICI), 401(k) plan participants invested in stock mutual funds on average paid lower expense ratios in 2010.

The report,The Economics of Providing 401(k) Plans: Services, Fees and Expenses, 2010, shows at year-end 2010, $1.8 trillion, or more than half, of the $3.1 trillion in 401(k) assets was invested in mutual funds, primarily in stock funds. 

The asset-weighted average expense ratio paid by 401(k) investors on their stock funds dropped 3 basis points to 0.71% in 2010, slightly lower than the 2009 average. According to the ICI, the 401(k) average expense ratio is measured as a 401(k) asset-weighted average; the total expense ratio, which is reported as a percentage of fund assets, includes fund operating expenses and the 12b-1 fee. 

“The drop in the average expense ratio incurred by 401(k) investors in stock mutual funds reflects cost-conscious decisionmaking by plan sponsors and plan participants, as well as the impact of rising stock values in 2010, which helped to spread fixed fund expenses across a larger asset base,” said Sarah Holden, Senior Director of Retirement and Investor Research.