Many 401(k) participants have no idea that one mutual fund can have six or more different expense ratios (called "share classes”), which is the percentage of account balances collected for management and administrative costs. Expense ratios are important because they directly impact investment returns.
There are currently about 72 million 401(k) investors. Historically, employees have paid 95-percent of the cost of providing 401(k)'s, but this cost share is trending upward in the current recessionary environment. According to a recent report by Boston based Dalbar, which rates investment related firms, most 401(k) investors believe they pay nothing for the management and administrative services.
Federal rules going into effect in 2012 will require that fund providers give client companies and their employees detailed information about their funds' expense ratios. Previously, little attention was paid to these fee structures and companies tended to assume that their plans were competitively priced. Early action in the marketplace indicates that this is an area ripe for strategic sourcing that brings reductions of 30-percent or more. Sending a plan out for bid and choosing low cost share classes over their higher priced, but otherwise identical, sister classes can reap effective results.
For more information regarding benefit trends, market intelligence and negotiation best practices, please contact:
Jill Dobbs, Director of Membership Services: email@example.com; (530) 386-6679