Fear of Fees in Defined Contribution Plans

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