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Are You Struggling to Understand 401(k) and 403(b) Share Classes and Fees?

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Do you know what you’re paying for the mutual funds in your 401(k) or 403(b) plan? Most people don’t: a 2011 survey conducted by the AARP found that a whopping 71 percent of respondents didn’t think they paid anything for investments in their retirement accounts. However, this perception is far from the truth! 

Luckily, new rules have been enacted that will simplify your 401(k) statement so that fees are more transparently disclosed. Starting by November 14, 2012, each quarterly account statement will be required to clearly explain the fees charged to your account and the actual dollar amount that you paid in the previous quarter. Unfortunately, this legislation does not apply to 403(b) plans, so these plans will continue to provide the same disclosures as before. 

Mutual fund fees can be complicated and a lack of advisor communication can make investors feel even more confused. There’s a lot more to it than just the expense ratio: mutual funds come in different share classes with different fee structures, which can impact your long term account performance. As a result, 401(k) and 403(b) plan participants often struggle with allocating their accounts, as it can be confusing and intimidating to wade through all the information out there.  

But by knowing what I’m about to explain, you can review your account and hopefully improve your share class allocation strategy (note that if your retirement plan offers only institutional shares, this article won’t be relevant to your qualified plan). Remember that it is critical that you know the reason why you own a particular share class as it can have a significant impact on your account over the long run. In this brief article, I’ll try to demystify share class differences so that you can begin the process of allocating your account in the way that you feel is best for you.  

Types of fees

Before tackling the different share classes, it’s helpful to have a grasp of some of the common fees you encounter as a mutual fund investor. Some of the most basic and important fees are loads and expense ratios. 

Loads are simply sales charges, and they can be structured differently depending on the mutual fund. A fund with a front-end load will deduct the sales charge at the time of purchase, while a fund with a back-end load, also known as a deferred sales charge, will deduct the fee when you sell your shares. A no-load fund does not charge a sales fee at all.  

Expense ratios are charges for the fund’s operating activities, including fund management, advertising and sales activities, and administrating fees. They are published as an annual percentage of assets under management, and expense ratios can vary widely across mutual funds.  

Class A Shares

Class A shares charge a front-end load, or an upfront sales charge at the time of purchase. This fee is often reduced for larger investments, whether in a single fund or across several, and Class A shares generally also carry the lowest expense ratios

Class A shares are often attractive if you can meet the fund’s breakpoint requirements and plan on holding the shares for a longer period, during which you can take advantage of lower expense ratios and make up for the fund’s upfront sales charge.  

Class B Shares

In my experience, mutual fund companies are moving away from offering B shares, but it’s still useful to know about them. Class B shares charge a deferred sales charge, meaning the sales charge is incurred when you eventually sell your shares. The deferred sales charge usually declines or goes to zero the longer you hold the fund, but you’ll want to pay attention to the details for each particular mutual fund. The expense ratio charged by a Class B share will typically be much higher than those charged by Class A shares. For some funds, if you meet the holding period requirements the shares will automatically be converted into Class A shares. 

Class B shares can make sense in situations where you’re planning to invest a smaller amount of  money and hold onto the fund for an extensive period of time, which could in some cases allow you to convert the shares to Class A without investing large amounts or incurring a front-end load. However, make sure that this strategy makes sense for you, as you will be paying higher expense ratio over the life of your investment (unless they convert to Class A shares) and may incur charges if you decide to sell for any reason before the holding period limit. 

Class C Shares 

Finally, Class C shares typically do not charge a front-end load, though some may charge a deferred sales charge if the shares are held for less than 12 full months. This fee is typically much smaller than the deferred sales charge charged by Class B shares, and is typically about 1 percent. Expense ratios are higher for Class C shares than Class A shares, and very rarely are they convertible into Class A shares over time. 

Class C shares can be compelling for shorter-term investments, as they have shorter holding period requirements than Class B shares and do not carry the front-end loads of Class A shares. However, keep in mind that you will generally pay more in expense ratios for this flexibility.  


While it may seem daunting, strategizing your share class selection can significantly improve the fee efficiency of your 401(k) or 403(b), which could have a considerable impact on your long-term performance.  Talk to your advisor about which share class makes the most sense for you and don’t be afraid to ask questions! You might also want to check out tools such as FINRA’s great fund comparison app, which provides a clear cost comparison of up to three mutual funds. 

Also keep in mind that another option for an old 401(k) plan from a previous employer is to roll it over to an IRA, which will often provide greater choice and thus more options for selecting the share class that will work best for you.  

To learn more, you might also want to read more about mutual fund fees; I recommend Understanding Mutual Fund Share Classes and Mutual Fund Fees and Expenses articles as a more detailed primer. Also check out my article What Are All These Fees? (Knowing  Your Asset Management and Mutual Fund Fees).  

Remember, fees alone are not the whole story: some great funds, particularly those that are actively managed, are more expensive than others, and may have the performance advantage to make up for it. However, this is an important topic to be aware of and to feel comfortable with so that you can optimize the long-term health of your retirement savings. So take a look at your accounts and don’t be afraid to ask questions until you feel comfortable with your fees! 


To learn about retirement savings, download my free eBook, “10 Tips You Need to Know About Your IRA Rollover.” This short book is packed with critical information that will help you make the right decisions about your retirement savings.

Mutual Funds are sold by Prospectus this to any client or prospective. Please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information please call the mutual fund company to request a Prospectus. Please read it carefully before you invest. 

Please carefully consider the fund’s investment objective, risks, charges and expenses applicable to a continued investment in the fund before investing. For this and other information, call or write to the mutual fund company for a free prospectus, or view one online. Read it carefully before you invest or send money.

Written by Bradford Pine
Bradford Pine Wealth Group – New York City Financial Advisors

The views and opinions expressed in an article or column are the author’s own and not necessarily those of Cantella & Co., Inc. It was prepared for informational purposes only. It is not an official confirmation of terms. It is based on information generally available to the public from sources believed to be reliable but there is no guarantee that the facts cited in the foregoing material are accurate or complete.

Comments may not be representative of the experience of other investors. Investor comments and experiences are not indicative of future performance or results. Views and opinions expressed in the comments section are the author’s own and not those of Cantella & Co., Inc. No one posting a comment has been compensated for their opinions.

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