The average expense ratio for stock mutual funds paid by 401(k) plan participants slipped in 2010, while fees for bond funds remained steady and fees for money market funds fell sharply, according to the Investment Company Institute.
The asset-weighted average expense ratio for stock mutual funds slipped to 71 basis points from 74 basis points, and asset-weighted average expense ratio for bond funds remained at 56 basis points.
For money market funds, the asset-weighted average expense ratio dropped to 28 basis points from 37 basis points, according to a summary of the ICI research issued Wednesday.
“The decline in the asset-weighted average stock mutual fund expense ratio paid by 401(k) plan participants in 2010 was not unexpected,” Sarah Holden, ICI senior director of retirement and investor research, wrote in an e-mailed response to questions.
“As the stock market rose in 2010, fund expense ratios, which often vary inversely with fund assets, tended to move lower,” she wrote. “This happens because certain fund costs — such as transfer agency fees, accounting and audit fees, and directors’ fees — are relatively fixed in dollar terms.”
Ms. Holden added that the expense-ratio decline for stock funds also could be linked to “an ongoing trend of 401(k) participants tending to concentrate their assets in lower-cost funds.”
The decline in the average fee for money market funds “was attributable in large part to the effects of the low interest-rate environment and the consequent fee waivers by many money market fund providers,” according to an ICI summary of its research.
By the end of 2010, ICI said 59% of $3.1 trillion in 401(k) plan assets was invested in mutual funds.
ICI bases its research on reviewing fee and expense disclosures by mutual funds, and it also tracks 401(k) plan account holdings of mutual funds. “This report combines the results of these analyses in order to examine the fees and expenses that investors incur on mutual funds held in 401(k) accounts,” ICI said.