Think the roster of mutual funds in your 401(k) was selected because they represent the best options? Think again! Very often the decision is biased by payments between fund companies and the firms that package the 401(k) plan:
- Mutual funds often make payments to companies for the privilege of appearing in their 401(k)
- These “pay-to-play” arrangements can discourage plan providers from selecting the best funds for you or offering low-cost index funds since most of these do not match the payments from active funds
- These payments obscure the true fees and costs of 401(k) plans
- For example, the Pimco Total Return fund pays an estimated $145 million a year to get into 401(k) plans
- Growth Fund of America pays $75 million a year
- Dodge & Cox Stock pays $20 million a year
Exercise caution when deciding which funds to use in your 401(k). Have questions or concerns? Send your questions to firstname.lastname@example.org and we’ll do our very best to help.