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401(k) fees have been a hot topic in the news for many years now and, more often than not, the focus is on the evils of these fees. Much of the coverage, however, doesn’t tell the whole story. It’s time to dispel yet another myth about fees within 401(k) plans: the difference between actively-managed mutual funds and passively-managed funds, otherwise known as index funds.
Let’s start by repeating the ground rules for 401(k)s. When looking at ERISA (Employee Retirement Income Security Act of 1974), which governs 401(k) plans, it clearly states that 401(k) fees shall be REASONABLE for the products and services delivered. Nowhere in ERISA does it say that a plan must have the lowest fees.