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Yahoo
5 days ago
- Business
- Yahoo
Retirement savers are getting a boost from low mutual fund fees
Let's hear it for a bit of good news for retirement savers. The average mutual fund expense ratios in 401(k) plans are at historic lows, according to a new research report from the Investment Company Institute (ICI). Average equity mutual fund expense ratios paid by 401(k) plan savers have dropped from 0.76% in 2000 to 0.26% in 2024, according to the report. Think that half a percentage point doesn't matter? Here's what it looks like in dollars. Consider this: You're 35 years away from retirement and have a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.26%, your account balance will grow to $245,127.52 at retirement, even if there are no further contributions to your account. Read more: Your guide to how a 401(k) works If fees and expenses are .76%, however, your account balance will grow to just $207,980.31. The addition of a mere .5% annually over a 35-year span can cut your retirement account by $37,147.21. 'The long-term downward trend in mutual fund fees for more than two decades is great news for investors looking to secure their financial future,' Sarah Holden, ICI's senior director of retirement and investor research, told Yahoo Finance. Millions of 401(k) participants invest in equity mutual funds, including both active and index equity mutual funds, according to the report. As for target-date funds, the retirement savings vehicle Americans can't get enough of, their average expense ratio has also dropped dramatically over the decades, from 0.67% in 2008 to 0.29% now. Reduced fees — even by slivers of a point — are consequential. Sign up for the Mind Your Money weekly newsletter By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy The expense ratio fee is subtracted from your investment returns. They include what a mutual fund or ETF pays for management advisory fees as well as the cost of marketing and selling the fund and other shareholder services, transfer-agent costs, and legal and accounting expenses. A 401(k) plan may deduct fees — both administrative and investment — from your account either as a direct charge or indirectly as a reduction of the account's investment returns. It all adds up to real money you'd much rather have to live on in retirement than pay out in phantom fees to a bank or brokerage. Learn more: How to start investing in 6 steps Finding the real cost It's not all that easy to suss out what you're paying in fees in your 401(k) account. But it is possible with a little legwork. Employers are required to provide both an initial and an annual fee disclosure notice to plan participants. It outlines the fees associated with your 401(k), including the expense ratios for each fund available within your mutual fund or ETF has a prospectus that details its expense ratio, typically in a section called 'Annual Fund Operating Expenses.' These documents can be found on your 401(k) provider's website. If you can't find the information, contact your 401(k) plan administrator, who can provide the fee details or guide you to them. One additional resource: The Financial Industry Regulatory Authority (FINRA) provides a fund analyzer on its site to help. My two cents: Keep the low expense trend going by choosing index funds or other low-expense options with expense ratios below 0.5%. Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming "Retirement Bites: A Gen X Guide to Securing Your Financial Future," "In Control at 50+: How to Succeed in the New World of Work," and "Never Too Old to Get Rich." Follow her on Bluesky. Sign up for the Mind Your Money newsletter
Yahoo
5 days ago
- Business
- Yahoo
Retirement savers are getting a boost from low mutual fund fees
Let's hear it for a bit of good news for retirement savers. The average mutual fund expense ratios in 401(k) plans are at historic lows, according to a new research report from the Investment Company Institute (ICI). Average equity mutual fund expense ratios paid by 401(k) plan savers have dropped from 0.76% in 2000 to 0.26% in 2024, according to the report. Think that half a percentage point doesn't matter? Here's what it looks like in dollars. Consider this: You're 35 years away from retirement and have a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7% and fees and expenses reduce your average returns by 0.26%, your account balance will grow to $245,127.52 at retirement, even if there are no further contributions to your account. Read more: Your guide to how a 401(k) works If fees and expenses are .76%, however, your account balance will grow to just $207,980.31. The addition of a mere .5% annually over a 35-year span can cut your retirement account by $37,147.21. 'The long-term downward trend in mutual fund fees for more than two decades is great news for investors looking to secure their financial future,' Sarah Holden, ICI's senior director of retirement and investor research, told Yahoo Finance. Millions of 401(k) participants invest in equity mutual funds, including both active and index equity mutual funds, according to the report. As for target-date funds, the retirement savings vehicle Americans can't get enough of, their average expense ratio has also dropped dramatically over the decades, from 0.67% in 2008 to 0.29% now. Reduced fees — even by slivers of a point — are consequential. Sign up for the Mind Your Money weekly newsletter By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy The expense ratio fee is subtracted from your investment returns. They include what a mutual fund or ETF pays for management advisory fees as well as the cost of marketing and selling the fund and other shareholder services, transfer-agent costs, and legal and accounting expenses. A 401(k) plan may deduct fees — both administrative and investment — from your account either as a direct charge or indirectly as a reduction of the account's investment returns. It all adds up to real money you'd much rather have to live on in retirement than pay out in phantom fees to a bank or brokerage. Learn more: How to start investing in 6 steps Finding the real cost It's not all that easy to suss out what you're paying in fees in your 401(k) account. But it is possible with a little legwork. Employers are required to provide both an initial and an annual fee disclosure notice to plan participants. It outlines the fees associated with your 401(k), including the expense ratios for each fund available within your mutual fund or ETF has a prospectus that details its expense ratio, typically in a section called 'Annual Fund Operating Expenses.' These documents can be found on your 401(k) provider's website. If you can't find the information, contact your 401(k) plan administrator, who can provide the fee details or guide you to them. One additional resource: The Financial Industry Regulatory Authority (FINRA) provides a fund analyzer on its site to help. My two cents: Keep the low expense trend going by choosing index funds or other low-expense options with expense ratios below 0.5%. Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including the forthcoming "Retirement Bites: A Gen X Guide to Securing Your Financial Future," "In Control at 50+: How to Succeed in the New World of Work," and "Never Too Old to Get Rich." Follow her on Bluesky. Sign up for the Mind Your Money newsletter Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Time Business News
19-07-2025
- Business
- Time Business News
Fiduciary Breaches Could Quietly Undermine Retirement Accounts, Study Shows
A new analysis from J. Price McNamara spotlights how hidden fees and fiduciary missteps within employer-sponsored retirement plans can significantly erode long-term savings. Based on recent litigation trends and federal data, the study examines how fiduciary breaches under the Employee Retirement Income Security Act (ERISA) are becoming increasingly costly for millions of American workers. Plan administrators carry a legal duty under ERISA to act in the best interest of participants. This includes monitoring service providers, controlling fees, and maintaining fee transparency. When these responsibilities are ignored or poorly managed, participants may face steep losses over time. The financial impact can be substantial. Data cited in the study shows that even a one percent increase in retirement plan fees can reduce total savings by up to 28 percent over 35 years. That reduction could amount to tens or even hundreds of thousands of dollars for individual account holders. A chart from the Department of Labor illustrates how savings accumulate under different fee scenarios, assuming steady contributions and returns over time. Recordkeeping fees offer a clear example. While competitive rates hover around $35 per participant annually, some plans pay as much as $150 per person. These inflated charges suggest a failure to negotiate fair rates or to vet service agreements thoroughly. Investment choices also raise concern. Analysis of data from the Investment Company Institute indicates that 67 percent of retirement plans still use higher-cost retail-class mutual fund shares, despite the availability of lower-cost institutional alternatives. This decision, often overlooked, increases participant costs without improving performance. Benchmarking can help control these expenses. Administrators are expected to compare their plan's fees against similar offerings. Failure to do so may result in participants absorbing fee increases of up to 13 percent. When benchmarking is ignored, plans may drift further away from industry standards, placing additional strain on future retirement security. Litigation linked to excessive retirement plan fees has surged in recent years. According to statistics reviewed by J. Price McNamara, more than 200 class-action lawsuits have been filed since 2015. In 2020 alone, 90 suits targeted employers for fiduciary violations. Between 2017 and 2021, excessive fee litigation rose by over 50 percent. Notable settlements underscore the risks of noncompliance. In 2019, MIT agreed to pay $18.1 million to resolve claims of excessive fee practices. That same year, Johns Hopkins University settled for $14 million. These outcomes reflect growing legal and financial exposure for plan sponsors and fiduciaries who fail to maintain adequate oversight. Participants have legal options when fiduciary duties are breached. Administrators must regularly disclose all fees and adjust plan structures to keep costs competitive. If savings have been diminished due to excessive charges, individuals can pursue restitution through legal action. Successful claims not only help restore lost funds but often lead to improved management and oversight practices. The study concludes that recent regulatory changes have improved fee disclosure requirements, yet many plans still fall short. Inadequate governance, lack of transparency, and poor provider oversight continue to drive legal challenges. With litigation rates climbing, awareness of one's rights as a retirement plan participant has never been more important. J. Price McNamara's research emphasizes the need for proactive financial literacy and regulatory enforcement. Retirement security depends not only on contributions and returns but also on how well fiduciary responsibilities are upheld. TIME BUSINESS NEWS
CNBC
13-07-2025
- Business
- CNBC
Coming to a 401(k) near you: Private market assets
Apollo Global Management CEO Marc Rowan told attendees at an investor conference last month that the day will soon come when private assets are accessible in Americans' retirement accounts. "I would expect at some point, in this administration's history or in the future, to be able to sell private markets into the 401(k) system," Rowan said on stage at the Morningstar Investment Conference in Chicago, Illinois, where the convergence of private and public markets was a major theme. Those comments come as no surprise from the billionaire CEO, who has long stressed the growing importance of private markets in investing. However, the idea is reaching a tipping point. Private market exposure in 401(k) plans was considered permissible in 2020, when the Department of Labor under the Trump administration issued an information letter indicating it could be appropriate for defined contribution plans under certain conditions. The guidance was later affirmed by the Biden-directed agency. But its presence is starting to expand. Asset managers and plan sponsors have created products for retirement vehicles in which Americans collectively hold roughly $8.7 trillion in assets, according to data on 401(k)s at the end of the first quarter of 2025 from the Investment Company Institute . In June, BlackRock, the world's largest asset manager, said it's launching a 401(k) target date fund in the first half of 2026 that will include a 5% to 20% allocation to private investments. In May, Empower, the country's second-largest retirement plan provider, said it's joining asset managers such as Apollo to start allowing private assets in some accounts later this year. Those developments come amid a broader push under Trump's second term in office to expand the definition of "accredited investors" to allow more people to invest in private markets through their 401(k)s. Within the retirement plan industry itself, the conversation is reaching a fever pitch. Bonnie Treichel, chief solutions officer at Endeavor Retirement, said, "If you're at retirement plan-related conferences right now, this topic is all the rage, so to speak." Similarly, Fred Reish, a partner at law firm Faegre Drinker said: "It's not just out there somewhere on the horizon, I would say that's in the immediate future." How it works The strategies created for 401(k)s thus far will be coming in the form of pooled investments such as collective trusts, or managed accounts overseen by professional investors, instead of standalone investments assessed by individual employees. Adding private assets to target date funds, which automatically adjust allocations based on a retirement date, is one option that's growing in popularity in the industry. The structure of those investments are meant to address some of the regulatory concerns around the assets, which have traditionally been excluded from 401(k)s even as they were embraced by pension funds and university endowments. The treatment stems from the perception that private investments have risks such as a lack of transparency, which raises predatory concerns, as well as higher fees and long lockup periods. The 2020 Labor Department information letter also attempted to address those concerns, outlining that investments into private assets made within 401(k)s must be done with prudence, or held to the standard of a person who is "familiar with such matters," without which a company or an asset manager can open themselves up to legal ramifications. "If fiduciaries make a bad investment, not bad an outcome, but bad both in outcome and bad in that they didn't really vet it properly, they can be sued, and they can be personally liable for damages," said Reish, who specializes in the Employee Retirement Income Security Act of 1974 (ERISA) that governs employee retirement plans. "So, not just the company, but also each individual member of the plan committee. Each of those officers and managers that serves on the plan committee can be personally liable. That's frightening." Intel, for example, had a lawsuit dismissed earlier this year by a federal appeals court in San Francisco after a yearslong dispute over its use of alternative assets in its retirement plans. Additionally, what that could also mean is that larger plan sponsors, which have the internal capabilities to vet private investments, could move faster to integrate privates into a 401(k) plan, rather than smaller companies. The case for privates Still, there are several reasons for the excitement around private assets in 401(k) plans. Proponents point out that the investable universe has shrunk over the last three decades, roughly halving to about 4,000 companies from more than 8,000 back in the 1990s, according to the Center for Research in Security Prices. At the same time, the dominance of the largest public companies grows increasingly pronounced with each passing year. CRSP found that the market cap of the top 10 companies accounted for 35% of the total market in 2024, more than double what it was before 2020. Meanwhile, more companies are staying private for longer. The decision helps executives build their businesses away from the glare of regulatory scrutiny or responsibilities to shareholders, but also makes it harder for investors to get in on the ground floor of the next Microsoft or Apple. Thus, the argument goes, private assets will give investors exposure to a market that looks markedly different from what it had in the past — even if it requires locking up capital for longer periods of time at greater cost and greater risk. Still, there are many who worry the risks far outweigh any benefits, calling private investments far too opaque for plan sponsors to do appropriate due diligence. "Being private does not make it better. It makes it less liquid," Apollo's Rowan told investors at the Chicago conference. "Our job is to deliver excess return."
The Guardian
06-07-2025
- Business
- The Guardian
Born into crisis, gen Z is saving for retirement like no other generation
Research published at the end of last year by the Investment Company Institute with help from the University of Chicago found that gen Z – those born between 1997 and 2012 – are 'outpacing' earlier generations in contributing to retirement, having more than three times more assets in their 401(k) retirement savings accounts than gen X households had at the same time in 1989, adjusted for inflation. This mirrors a 2023 study from the TransAmerica Center for Retirement Studies, which found that gen Z is doing a 'remarkable job' saving for retirement with many putting away as much as 20% of their income towards the future. It's no wonder why. The oldest of this generation probably have early memories of the 2009-2010 financial crisis. They have lived through a global pandemic. Their social media accounts are frightening them with stories of political upheavals, global warming, indiscriminate violence, riots, chaos and anarchy. Older generations got this kind of news maybe once or twice a day. This generation gets it fed to them every minute. They yearn for security. And one way is to save their money. The question is, are they doing enough? What more could be done? Here are three things we should be considering. Thanks to the Secure2022 legislation, employers can now not only offer Roth 401(k) plans for their employees but can also contribute to those plans. We should all have one. That's because – within income limitations – contributions to a Roth 401(k) are made after taxes have been paid but then grow tax-free and can be withdrawn without any tax liability after the age of 59 1/2. gen Zers – who are likely to be paying less in taxes now due to their relatively lower salaries – can put this money away at lower rates, rather than just defer taxation to a future year when, under regular 401(k) rules, distributions become required. And they can let these sums grow without worrying about paying any more taxes in the future. As an employer, you can provide investment options that can help maximize their returns too. Another great after-tax vehicle is the 529 plan. By offering this plan, an employer can help their employees – both younger and older – put after-tax money away that will grow tax-free and can then be withdrawn if used to pay for higher education, private school or religious school. It's a great way for gen Zers to save for their future kids' education instead of paying for it out of funds that would be used for their own retirement years down the line. Health Saving Accounts have exploded in popularity over the past decade, and it's no surprise why. With these accounts – which need to be paired with a high deductible group insurance plan – employees can sock away pre-tax dollars to be used for medical expenses that are not reimbursed by their health plans. Gains and withdrawals are not taxed. The beauty of these plans is you don't have to use them or lose them – any unused balances just roll over to the next year. Some call it a 401(k) for healthcare, and they're not wrong. It's a great way for younger employees to put away money that could help pay for their future healthcare costs without interfering with their retirement savings. Agree or not, the Trump administration has reversed course with its predecessor and is now demanding student loan repayments. The result is that many younger people are going to need to face the reality of making good on their debt. One fallout will surely be less cash available to put away for retirement. But as employers, we can help. The Secure 2022 legislation now makes it legal for us to match their student loan payments with contributions to their 401(k) plans. This way even if they don't have enough funds to put away for the future, employers can help make up the difference. This is something we should all consider. As a certified public accountant, I have spent my life dealing with money – both my own and my clients'. And yet every day I learn something new and still have to rely on the internet to clarify and research financial questions that I have. Now, imagine being a 25-year-old trying to figure out all the options. It's impossible. A good employer should have an outside financial counselor on retainer who can provide one-to-one advice for their employees once or twice a year. My best clients do this. And it's not just about retirement. It's buying a house, getting insurance, owning a car … all the financial decisions that in the end affect what's left over for retirement. According to a recent Goldman Sachs survey 60% of gen Z respondents report 'having a personalized financial plan, not just for retirement but also for goals like buying a home or a car' and 68% 'believe their savings are on-track or ahead of schedule'. Sounds great. But I'm betting that 'plan' could be improved. Employers should be providing more help to help save for retirement. And the good news is that they have got a generation eager to take it.
