Mutual fund investors populating smaller retirement savings programs are systematically being charged higher fees than other participants in larger retirement vehicles, The Wall Street Journal reports.
New studies compiled by Baltimore-based HR Investment Consultants indicate that companies with fewer than 50 employees are docked up to 1.4% of their assets in annual fees, whereas retirement plan participants at companies with more than 1,000 employees typically pay asset-based annual fees totaling 1.17%, which is 19% less.
This discrepancy in fees based on payroll sizes means smaller firms typically shoulder higher expenses that reduce long-term investment performance. As a result, employees at smaller firms are predictably falling behind their counterparts at larger firms.
Mutual fund companies and other retirement plan provides often jack up fees in smaller plans to recover servicing expenses concentrated in fewer employees. Many retirement plan providers like Vanguard avoid smaller plans of $3 million or less. Nearly 75% of the 400,000 businesses offering 401(k) plans have fewer than 50 participants.