PLANADVISER - May/June 2018 - 7

plan focus
401(k) Plan Costs Average 0.88%
Since 2009, total plan cost has decreased
I
n 2015, the average 401(k) plan had
a total plan cost of 0.88% of assets,
yet the average participant was in a
plan with a total plan cost of 0.51% of
assets, while the average dollar was in
a plan with a total plan cost of 0.37% of
assets, according to " The BrightScope/
ICI Defined Contribution Plan Profile: A
Close Look at 401(k) Plans, 2015. "
BrightScope-like PLANADVISER, a
Strategic Insight company-says this
pattern occurs for a couple of reasons.
First, participants and assets tend to
be concentrated in larger plans. For
example, though only 2.8% of audited
401(k) plans in the BrightScope Defined
Contribution (DC) Plan Database have
over $1 billion in plan assets, over 40%
of participants are enrolled in these
plans, and they hold nearly 60% of all
401(k) assets. A similar pattern occurs
in the Department of Labor (DOL)
401(k) Form 5500 universe.
Another reason that participantweighted
and asset-weighted total plan
costs are lower than the plan-weighted
cost is because larger plans tend to
have a lower total cost when that is
measured as a percentage of plan
Larger plans tend
to have a lower
total cost when
that is measured
as a percentage
of plan assets.
assets. For example, 401(k) plans with
$1 million to $10 million in assets had
an average total cost of 1.17% of those
assets in 2015, compared with 0.52% of
assets for plans exceeding $100 million
to $250 million and 0.30% of assets for
plans exceeding $1 billion.
Similar patterns occur for both
the participant-weighted and assetweighted
numbers. Larger plans tend
to have lower fees, in part because the
greater share of their assets is invested
in index funds, which tend to have
lower expenses than other investments
types (see chart). In addition,
there are fixed costs associated with
offering a 401(k) plan. As plan size
grows, those fixed costs can be spread
over more participants and a larger
asset base, lowering the total plan cost
as a percentage of assets.
Since 2009, total plan cost has
decreased, whether measured on a
plan-, participant- or asset-weighted
basis. Among the large 401(k) plans
analyzed, for instance, total plan cost
dipped from 1.02% in 2009 to 0.88%
in 2015
on a plan-weighted basis,
from 0.65% to 0.51% on a participantweighted
basis, and from 0.47% to 0.37%
on an asset-weighted basis. Almost all
plan size groups saw reductions in total
cost between 2009 and 2015, but the
largest appear in plans having assets of
$1 million to $10 million.
Total 401(k) plan costs varied
around the plan-weighted average of
0.88% in 2015. For example, 10% of
plans had a total cost of 0.39% or less,
while another 10% had a total cost of
1.38% or more. Although there is a
significant range in total plan cost, the
difference between 10th percentile and
90th percentile plans tends to decrease
as plan size increases. -PA
Average Expense Ratios of Mutual Funds in 401(k) Plans, 2015
Equity Mutual Funds
Balanced Mutual Funds
Non-TargetPlan
Assets
$1mm - $10mm
>$10mm - $50mm
>$50mm - $100mm
>$100mm - $250mm
>$250mm - $500mm
>$500mm - $1b
>$1b
All Plans
Domestic
0.81%
0.68%
0.55%
0.52%
0.49%
0.45%
0.36%
0.46%
International
1.01%
0.85%
0.72%
0.68%
0.63%
0.6%
0.52%
0.63%
Source: BrightScope and Investment Company Institute
Target-Date
Mutual Funds
0.79%
0.68%
0.54%
0.55%
0.5%
0.5%
0.48%
0.53%
Date Balanced
Mutual Funds
0.8%
0.64%
0.5%
0.45%
0.42%
0.39%
0.32%
0.41%
Domestic
0.72%
0.59%
0.44%
0.4%
0.36%
0.33%
0.26%
0.35%
International
0.85%
0.77%
0.66%
0.64%
0.67%
0.65%
0.65%
0.67%
Money Market
Mutual Funds
0.16%
0.17%
0.16%
0.15%
0.15%
0.14%
0.13%
0.14%
Bond Mutual Funds
planadviser.com may-june 2018 | 7
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PLANADVISER - May/June 2018

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