Retirement Plan Fees Consume 30% of Returns

Plan fees account for nearly one-third of an investor’s potential returns, a paper found.


A two-income household, in which both partners earn the median income each year over their working lifetimes, will pay an average of $154,794 in 401(k) fees and lost returns, according to the fee model in “The Retirement Savings Drain,” by the research group Demos. A higher-income dual-earner household, in which the partners earn incomes greater than three-quarters of Americans each year, can expect to pay an even steeper price: as much as $277,969.  

Demos found the median expense ratio of mutual funds in 401(k) plans was 1.27% in 2010. Trading costs vary from year to year, but have been estimated to average approximately 1.2% per year as well.  

The average mutual fund earns 7%, before fees, matching the average return of the overall stock market, Demos found. However, the post-fee returns average only 4.5%, meaning that, on average, fees eat up more than a third of the total returns earned by mutual funds.   

Smaller 401(k) plans have higher average fees than do larger ones. The median expense ratio for plans with fewer than 100 participants was 1.29%, while in plans with more than 10,000 participants, it was 0.43%.  

The paper can be downloaded here.