The Markets March 25, 2011

ICI Report Shows Fund Fees Declined in 2010

Average fees and expenses incurred by investors in long-term mutual funds declined in 2010, according to a recent study.
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The report by the Investment Company Institute (ICI) said stock fund investors in 2010 paid an average of 95 basis points (0.95%) in fees and expenses, down 3 basis points from 2009. Fees and expenses of bond funds declined one basis point, to 72 basis points.

ICI said expense ratios of stock funds declined in 2010, while expense ratios of bond funds were unchanged. The average expense ratio of stock funds fell two basis points to 84 basis points, after having risen the previous year. Bond fund expense ratios remained unchanged at 64 basis points, according to the data.

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The decline in fees and expenses of long-term funds was aided by a decline in load fee payments by investors; in 2010, the maximum sales load on stock funds offered to investors averaged 5.3%. But the average sales load investors actually paid was 1%, owing to load fee discounts on large purchases and fee waivers, such as those on purchases through 401(k) plans, ICI said.

Money Market Funds 

Meanwhile, the average fees and expenses of money market funds declined sharply in 2010. The average expense ratio on money market funds fell seven basis points, from 33 basis points in 2009 to 26 basis points in 2010. Expense ratios on money market funds fell sharply in 2010 because the great majority of funds waived expenses to ensure that net returns to investors remained positive in the current low interest rate environment.

ICI said average expense ratios of funds of funds declined for the fifth consecutive year. In 2010, the total expense ratio of funds of funds, which includes both the expenses that a fund pays directly out of its assets as well as the expense ratios of the underlying funds in which it invests, fell one basis point to 90 basis points.

Since 2005, the average expense ratio for investing in funds of funds has fallen 11 basis points, in part reflecting a shift by investors toward funds with lower expense ratios, according to the ICI data.

More information is at http://www.ici.org/pdf/per17-02.pdf .

Data & Research March 25, 2011

Demographics Outweigh Company Size in Plan Availability

The composition of a company’s employees are more of an influence on whether an employer-sponsored plan is available than the size of the company, according to the Investment Company Institute.
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In the study, Who Gets Retirement Plans and Why: An Update, the Investment Company Institute says differences in workforce composition appear to be a primary cause for the low rate at which small employers sponsor retirement plans. As a group, the characteristics of small-firm employees differ substantially from the characteristics of large-firm employees.   

However, workers at small firms that sponsor plans are very similar to workers at large firms that sponsor plans, and workers at small firms that do not sponsor plans are very similar to workers at large firms that do not sponsor plans. In particular, employees who work for firms that sponsor plans are more likely to be older, have higher earnings, and work full-time year round, according to the ICI report.  

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In addition, workers at small employers that sponsor retirement plans are as likely to participate as workers at large employers sponsoring retirement plans. Although only 17% of workers at firms with fewer than 10 employees have an employer that sponsors a plan—compared with 69% of workers at firms with 1,000 employees or more—if a firm sponsors a plan, approximately 80% of employees participate, regardless of firm size. 

The study found most workers who have the ability to save and be focused on saving for retirement are covered by an employer-provided retirement plan. Of those who want to save for retirement in the current year, three-quarters had access to a pension plan through their own employer or their spouse’s employer, and 93% of those with access participated.  

Younger and lower-income households are more likely to report that they save primarily for reasons other than retirement, such as to fund education, to purchase a house, to fund other purchases, or to have cash on hand in case of unexpected need.   

The study is at http://www.ici.org/pdf/per17-03.pdf.

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