Fear of Fees in Defined Contribution Plans
Pang, Gaobo. 2016. “Fear of Fees in Defined Contribution Plans.” Journal of Financial Planning 29 (7): 46–51.
10 Pages Posted: 2 Jul 2016 Last revised: 29 Jul 2016
Date Written: February 3, 2016
Abstract
Discussions are often anchored at fees when investment offerings, such as target date funds, are being vetted for defined contribution plans. A decomposition of wealth accumulation over the life cycle demonstrates the foremost role of persistent savings and, on this foundation, the power of long-term investing. Mandating a fee cut can make plan participants better off, other things being equal, but the gain is diminishing once the fee is compressed to a fairly low level. Selecting or dismissing investment strategies based on fees in isolation, absent a holistic view, is likely a biased effort in helping workers prepare for retirement.
Keywords: defined contribution (DC), target date funds (TDF), fees, fiduciary duty, plan sponsors, retirement, behavioral bias
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