Posts Tagged ‘revenue sharing’

Retirement Plan Share Classes: Understanding the Basics

February 27th, 2019 by Jonathan Leidy

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Share Class ABCs: Choose Wisely

Choosing mutual funds for your retirement plan’s investment lineup can feel like wading through a sea of alphabet soup. Fund companies typically offer multiple share classes, each sporting its own unique letter: A-shares, C-shares, I-shares, R-shares — what does it all mean? Here’s a brief primer to help you to better understand the basics.

ABCs of Fees

Before diving into this topic headlong, first, a brief word about fees. Each share class of a particular mutual fund owns the same exact underlying securities (stocks, bonds, etc.); they are identical. The only difference is the cost associated with each class. These costs come in two basic varieties: expense ratios and sales “loads.”

Expense ratios are the percentage of a fund’s assets used to cover administration, marketing and distribution (or 12b-1 fees), and all other costs. Typically paid by participants, these fees are calculated annually as a percentage of an investor’s assets. For example, a participant would pay $150 for a $10,000 balance invested in a share class with a 1.5% expense ratio.

Additionally, certain share classes charge significant sales loads. These fees are typically waived for mutual funds purchased through 401k plans.[1] If this is the case, neither the plan nor its participants pay these fees. Read the rest of this entry »