401(k) Tune Up: How to Lower Your Fund Fees

Runnymede has increasingly been serving as a fiduciary advisor to companies' 401(k) plans so I continue my series of articles on how to tune up your retirement plan.  The intended audience is the company and its trustees that sponsor the plan but participants are also advocating for better plans.  It is our hope to help employers optimize and better manage their retirement plan.  In doing so, we seek to help employees achieve their goal of successfully preparing themselves for retirement.

This week, I want to help you to decipher mutual fund share classes.  By far the largest component of 401(k) plan fees and expenses are those associated with managing plan investments.  Moving to less expensive funds is an action item that can save money fast and have a huge impact over time.


What are Mutual Fund Classes?

As an investor, you may have heard about Class A, Class B, Class C or other classes of mutual fund shares.  A single mutual fund, with one portfolio and one investment adviser, may offer more than one "class" of its shares to investors.  For example, we will look at the JP Morgan Large Cap Growth fund that comes in 8 different share classes.  Remember, each represents the same fund strategy and portfolio holdings but the fees and expenses charged to the investor are very different.

Fund Name Symbol Net Expense Ratio
JPMorgan Large Cap Growth A OLGAX 1.05%
JPMorgan Large Cap Growth C OLGCX 1.55%
JPMorgan Large Cap Growth Select SEEGX 0.90%
JPMorgan Large Cap Growth R2 JLGZX 1.40%
JPMorgan Large Cap Growth R3 JLGPX 1.15%
JPMorgan Large Cap Growth R4 JLGQX 0.90%
JPMorgan Large Cap Growth R5 JLGRX 0.70%
JPMorgan Large Cap Growth R6 JLGMX 0.60%


The Impact of Fund Fees Over Time

As you can see in the table above, the fees charged vary widely.  The difference between the most expensive class C-shares and least expensive class R6-shares is 0.95%.  Remember, investment-wise these funds are the same -- only the fees differ. 

Using FINRA's Fund Analyzer tool to illustrate, take a look at the potential impact a plan participant could see between owning the C versus R6 shares.  On a $100,00 investment, assuming an 8% rate of return over 20 years, the potential difference to the investor could be $71,530!


Multiply this difference across 200 employees and the total assets of your retirement plan, and the importance of offering the lowest cost funds becomes even more meaningful.


Check Your Fund Lineup

The alphabet soup of mutual fund share classes can be overwhelming.  Here is a table that can help you perform a quick assessment of your fund choices.  Sometimes, share classes vary depending on the fund company but I've applied general rules of the thumb to the following table.

Higher Cost Lower Cost
Class A Insitutional or Class I, X, Y, Z
Class B Class R5
Class C Class R6
Class T  
Class Adv (advisor)  
Service or Class S  
Class R1  
Class R2  
Class R3  
Class R4  


Fiduciary Responsibilty

Reviewing your fund fees and making sure that you are offering the lowest cost fund choices not only benefits participants retirement savings, it mitigates plan trustees' liability.  The law requires that fees charged to a 401(k) plan be “reasonable” rather than setting a specific level of fees that are permissible.  Fees will vary depending, in large part, on the size of your 401(k) plan, but reviewing and lowering fees as part of your process goes a long way to demonstrate to the Department of Labor that plan trustees are fulfilling their responsibilities.


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Do you understand mutual fund share classes?  Do you know if you can substitute lower cost funds into your lineup?



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About the Author: Andrew Wang

Andrew Wang


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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