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401(k) Plan Fees Expected To Continue to Fall in 2006


Fund scandals and the recent probes in the financial industry have caused retirement plan fees to decrease since 2003, and in 2006 they will continue on their descending path, according to sister publication Employee Benefit News. The pressure of competition has forced many funds to lower their management fees, and this, as well as regulatory scrutiny and consolidation in the financial industry, has contributed to the fact that retirement plan fees have also declined.

"Fee reduction figures in the first half of 2005 indicate a slightly lower amount of fee reductions than witnessed in 2004, but still far more robust than in 2003," said Kip Price head of global fiduciary review at Lipper. In 2002, management fees skyrocketed. However, after the scandals, they began to drop, as funds used the discount as a means of attracting investors.

"We noted a fee reduction year over year in every asset class we studied," said Rob Rossi, vice president and director of investment research for Invesmart. "While fees cannot decrease indefinitely; mutual fund companies have the ability to trim back operating expenses at the margin as mutual funds gain assets and realize larger economies of scale."

Rossi also said just because there is a decline in fees, that does not mean that plan sponsors will benefit, and he recommends that sponsors urge their providers to separate investment management fees from servicing and marketing fees in mutual fund expense ratios.

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