A client recently remarked that she was happy about the choices in her 401(k) but did not know which classes of shares were being offered. She was shocked to learn that she was paying commissions on every contribution.

Many mutual funds have 4 to 6 different offerings of the same fund, all with different costs and fees and commissions. Here is a list of common classes.

A class shares typically require upfront commissions, usually between 1% and
5%, commonly referred to as a “sales-load.” These shares generally have the smallest annual expense ratio.

B class shares commonly carry contingent deferred sales charges (CDSC), also called
 “back-end loads,” payable on the sale of the shares. B class shares generally have 
higher expense ratios than A class shares. On top of paying higher yearly expenses and a 
back-end load, shareholders are usually charged a 1% marketing fee, called a 12b-1. After an initial investment period, usually between 5 to 8 years, B class shares customarily convert to A class shares.

C class shares generally charge a 1% 12b-1 marketing fee and have expense ratios
 the same as B class shares. Although investors avoid up-front and back-end fees, C class shares ultimately may be the most expensive for many investors because 12b-1
fees are subtracted each year—year-in, year-out—for as long as the investor owns the shares.

F class shares are similar to A class shares, but have an asset-based fee, usually 1% to 1.5%, directly billed to investors by financial advisors.

I class shares, often called “institutional shares,” are usually sold to a broker’s largest customers and are sold without upfront loads, CDSC or 12b-1 fees. They carry expense ratios similar to A class shares.

R class shares, often called “retirement shares,” are similar to I class shares, but add
 additional payments to financial advisors and or record-keepers into the expense ratio. There can be several different R class shares offered.

What you as the plan participant desires is the class of share with the lowest expenses and never a commission.