At the end of 2007, $3 trillion in assets was held in 401(k)s; $1.7 trillion of that was in mutual funds. Seeing what a boon the 401(k) market has been to the mutual fund business, the ETF side naturally wants a piece. The mutual fund market share of the 401(k) market has ballooned from 9% in 1990 to about 55% at the end of 2007, the Investment Company Institute (ICI) says.
The ShareBuilder 401(k) comes with a 16-fund lineup, which might seem spare. But Robertson points out that when you begin offering more than that, it becomes overwhelming and confusing. “Studies have shown that the more options you give, participation starts to drop off.”
Money markets, Treasury Inflation Protected Securities (TIPS) and broad equities are represented. There are also five model portfolios, as Robertson notes that participants often make mistakes when it comes to asset allocation.
The five portfolios range from “stable,” which are heavy in low-risk investments, such as bonds, to aggressive, which is mostly allocated in large-cap growth and value funds. Most of the ETFs offered are from the iShares and SPDR families.
As new ETFs hit the marketplace, Robertson says that ShareBuilder probably won’t alter their plans much, since it’s felt that a good cross-section is represented as it is.
Robertson also notes something completely unique about their 401(k) plan: it’s the only one where you can go through all the steps of enrollment and never talk to anyone. He points out that it speaks more to the power of the technology they employ and the ease of the system’s use than anything else. Enrollment is also 100% paper-free.
ETFs are finally starting to make some headway into 401(k) plans, and there are some other all-ETF 401(k) plans out there available now. There’s one offered by iShares, consisting entirely of the world’s largest ETF provider’s funds. WisdomTree also has all-ETF 401(k) plans.