ICI: Money Funds in 401k Plans
ICI posted a press release entitled, "Mutual Fund Expense Ratios in 401(k) Plans Continued to Decline in 2017," which tells us that, "The cost of investing in mutual funds through 401(k) plans fell again in 2017, according to 'The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2017,' a research paper released today by the Investment Company Institute (ICI). The report also shows that participants who invest in mutual funds in their 401(k) plans tend to hold lower-cost funds." The full report says, "Only 2 percent of 401(k) mutual fund assets were invested in money market funds at yearend 2017.... 401(k) participants holding money market funds had an asset-weighted average expense ratio of 0.28 percent in 2017, higher than in 2016.... Industrywide, the average expense ratio investors incurred on money market funds also rose in 2017. The increase in money market fund expense ratios in 2017 is largely reflective of a change in the current interest rate environment. During the period of ultralow interest rates after the financial crisis, money market funds had adopted expense waivers to ensure that net yields did not fall below zero. When the Federal Reserve increased interest rates starting in December 2015, many funds began to pare back expense waivers. This caused the expense ratios of money market funds to rise somewhat." ICI's study says 401(k) plan assets in mutual funds total $3.5 trillion, so their 2% estimate for money market funds would amount to $70 billion in 401(k) assets. Over the past 3 years, ICI's study shows average money fund expense ratios for the industry rising from 0.14% in 2015 to 0.20% in 2016 and 0.25% in 2017. For 401(k) plans in particular, the average expense ratio for money market funds were higher, rising from 0.16% in 2015 to 0.22% in 2016 and 0.28% in 2017.
