The Economics of Providing 401(k) Plans: Services, Fees, and Expenses

The Investment Company Institute, November 2006

Executive Summary

  • 401(k) plans are a complex employee benefit to maintain and administer and are subject to an array of rules and regulations. Employers offering 401(k) plans typically hire service providers to operate these plans, and these providers charge fees for their services.
  • Employers and employees generally share the costs of operating 401(k) plans. As with any employee benefit, the employer generally determines how the costs will be shared.
  • About half of the $2.4 trillion in 401(k) assets at year-end 2005 was invested in mutual funds, primarily in stock funds. Mutual funds are required by law to disclose a large amount of information, including information about fees and expenses and portfolio turnover.
  • 401(k) investors in mutual funds tend to hold low-cost funds with below-average portfolio turnover. Both characteristics help to keep down the costs of investing in mutual funds through 401(k) plans.