Saving on 401(k) Costs

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A new poll says that many employers may be thinking of how to cut the costs of their employees' 401(k) plans. One key target: mutual funds.

Mutual funds are increasingly seen as more expensive and riskier, with growing management fees and the ongoing investigation into the industry. In a poll given by Hewitt Associates, more than 60 percent of the 140 respondents said they plan to diversify their 401(k) plans away from mutual funds to discounted alternatives like institutional funds.

Institutional funds offer lower fees, but are typically only available to larger companies ($20 - $30 million). Other alternatives can be unbundled investments where a plan manager works with different individual stocks. The study says that choosing alternatives can save 1 to 2 percent on fees a year.

This is one way to go, but is it necessary? And is dropping mutual funds the only answer? It seems like a bit of bandwagon behavior, to me.