iPlan Group SDIRA

Cost Disclosure Rules Cause Cheaper Mutual Funds for Retirement

In the face of new cost-disclosure rules, many mutual funds have created cheaper share classes for retirement plans.

The Labor Department is endeavoring to cut costs from retirement plans, requiring plan providers to give employees information about who pays what costs. More expensive mutual funds collect money not just for stocks but to defray administrative costs, such as mailing out statements or paying stockbrokers. Therefore, some funds may enact a separate administrative fee to make up for lost revenues at the hands of this new law and their cheaper fund offerings.

New laws are requiring mutual funds to disclose the costs more clearly in an effort to increase transparency in the 401(k) system. The average annual fee paid by investors in active funds was $93 per $10,000 last year, according to the Investment Company Institute. However, it looks like many funds are complying with laws that are intended to decrease the cost. MFS, Putnam, Janus and Columbia have all begun offering cheaper versions of their funds to use in retirement plans. For instance, the $4.5 billion Putnam Fund for Growth and Income (PGREX) charges $58 each year per $10,000 invested, compared to $137 for its other retirement shares.

While cutting costs is something of a departure from the norm for Wall Street, doing so will keep them from losing customers who don’t see many benefits en masse as mutual funds continue their rocky performance with no relief in sight.