This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Retirement Savers Should Benefit From Declining Target-Date Fund Fees

NEW YORK ( TheStreet) -- Many target-date funds have been slashing fees.

Allianz Global Investors recently reduced its expenses from 0.91% to 0.64%, while Nationwide (NFS) cut costs from 0.64% to 0.42%.

Companies such as Fidelity Investments and TIAA-CREF have introduced index funds with expense ratios less than 0.50%. The average expense ratio of the target funds is 0.72%, according to BrightScope.

The reductions are important for retirement savers because the target funds are staples in many 401(k) and IRA accounts.

Target-date funds are designed for people who will retire around a certain year, such as 2020 or 2040. These funds, which have diversified portfolios of stocks and bonds, have been embraced by employers seeking convenient choices for 401(k) plans. At many companies, target-date funds are now default choices; if employees take no action, money is automatically withdrawn from their paychecks and deposited into target funds.

In recent years, money has flowed into target funds, which now have $431 billion in assets, according to Ibbotson Associates.

As more participants have invested in target funds, employers have become increasingly concerned about maintaining low fees.

The emphasis on fees is likely to increase because of new 401(k) disclosure rules. Starting this fall, employees will receive written statements in the mail detailing the costs of the plans.

The statements could be an eye-opener for many plan participants, says Eddie Alfred, BrightScope's vice president of data and research.

"A lot of people don't think they pay any fees at all for their 401(k)s," he says. "It could be a rude awakening when they suddenly see that they are paying 1% or 1.5% of plan assets in fees."

Average expense ratios could fall sharply in coming years because companies are introducing target funds that invest in low-cost index mutual funds and exchange-traded funds. New entrants include BlackRock Lifepath Index Portfolios and Lincoln Advisors Presidential Protected Profile Funds.

Index funds track benchmarks such as the S&P 500. Because they make no effort to outdo the markets, index funds can come with low costs. In contrast, actively managed funds must charge more to support analysts and portfolio manager who seek to outdo benchmarks.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.24 0.00%
FB $117.81 0.00%
GOOG $701.43 0.00%
TSLA $211.53 0.00%
YHOO $36.94 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs