Only about 20% of managed 401(k) funds deliver better returns that those that are simply indexed to broader market performance, according to research conducted by the Vanguard mutual fund investment company.
The problem: Managed funds charge such hefty fees that they cancel out substantial investment gains. The typical managed-fund fee is 1.3%. The lowest-cost indexed funds charge fees of just 0.08%. That 1.22% annual difference can cost $159,000 in lifetime earnings for a worker who invests $3,000 per year in a managed 401(k) from age 25 to 65.
The take-away for HR: Work with your retirement benefits advisor to ensure 401(k) investment options include a variety of indexed funds.