Lower investment costs are helping retirement savers hold on to more of their returns. New data shows mutual fund expense ratios in 401(k) plans have dropped significantly, increasing the potential value of long-term savings.
Ongoing reductions in fees associated with retirement savings plans are quietly reshaping the future of pension pots across the United States. For millions of workers relying on 401(k) plans, a consistent decline in mutual fund costs is expected to yield substantial benefits by the time they retire.
New research from the Investment Company Institute (ICI) reveals that mutual fund expense ratios—fees subtracted from investment returns—have reached historically low levels. This decline, though incremental year-on-year, translates into thousands of additional dollars over a typical saving period.
Long-Term Fee Decline Significantly Improves Retirement Outcomes
The average expense ratio paid by 401(k) investors in equity mutual funds has dropped from 0.76% in 2000 to 0.26% in 2024, according to the ICI. While the difference may appear minor, the long-term effects on account balances are considerable.
For instance, an individual with a 401(k) balance of $25,000 and 35 years to retirement would accumulate approximately $245,127.52 with an expense ratio of 0.26%. At 0.76%, the same investment would yield only $207,980.31.
“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,” said Sarah Holden, ICI’s Senior Director of Retirement and Investor Research.
The fee reduction trend is evident not only in active equity mutual funds but also in index funds and target-date funds, which are commonly used for retirement. Target-date fund expense ratios have fallen from 0.67% in 2008 to 0.29% today, reflecting a broader industry shift towards lower-cost investment vehicles.
Transparency Challenges Persist for Retirement Savers
Despite the positive trend in lower fees, many savers still face obstacles in determining exactly how much they are paying. Fees are often deducted indirectly from returns or presented in complex documentation. According to the ICI report, employers must provide an initial and annual disclosure detailing these costs, but accessibility remains an issue.
Each mutual fund or ETF includes expense ratio information in a “Fund Operating Expenses” section of its prospectus. These can be found through 401(k) plan providers, but locating and understanding them may require direct contact with plan administrators.
Tools such as the Financial Industry Regulatory Authority’s (FINRA) online fund analyser offer additional support in calculating the true cost of fees.
