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Monitoring Mutual Fund Share Classes

Almost all mutual funds have multiple share classes, each with their own ticker, fee structure and minimums. The Employee Retirement Income Security Act (ERISA) says fees paid by participants to vendors must be reasonable. Therefore, it is important for plan sponsors to pick the share class with the most reasonable fees. Changes can occur that could make another share class more reasonable, so continuous monitoring of these share classes is not only important, it is your fiduciary responsibility

New Share Classes:

One change to look out for is when a fund company discontinues or adds a new share class. For example, recently, JPMorgan added a cheaper (lower expense ratio) R6 share class to their Smart Retirement Target Date series. You can see how this could be a problem if you were not aware of the change and thought you were still in the cheapest available share class.


Restrictions are another factor that changes frequently. Cheaper share classes usually have minimum investment restrictions and record-keepers might not carry all of the fund’s share classes. As your plan grows, the minimum requirements for a different share class may be met, and record-keepers could have added the missing share classes, creating additional share class options that were originally restricted. Continual scrutiny is needed to make sure the original share class chosen is still the most reasonable option available. At ProCourse, we check our clients’ fund lineups at least annually to make sure, if any changes did occur, they are still in most reasonable share class available.

A couple things to keep in mind when looking at share classes are the size of the plan and how the fee structure is set up with the record keeper. Some plans are in a closed architecture environment where the record keeper has already negotiated a certain share class for the plan.

Keep in mind, the cheapest share class is not always the best choice for every plan. The decision depends on aspects such as who pays plan expenses and how fees get allocated to the record keeper. In the end, when changes happen and new share classes are available, the plan sponsor has to look at the same factors that made the original share class the most reasonable.

#ERISA #Shareclass #MutualFunds #401k #retirement

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