The average actively managed large-cap mutual fund has an annual expense ratio of about 1.3%, whereas the average large-cap index fund trades at around 0.71%, reports David Pitt for the Associated Press. In comparison, an equivalent index ETF costs about 0.33%.
Elsewhere, ING Direct offers index ETFs in its Sharebuilder 401(k) plan, and T.D. Ameritrade also includes ETF options in its 401(k) plan.
Lower expense ratios translates to lower fees and higher returns in 401(k) accounts, which can amount to thousands of dollars over the life of one plan.
“We know that through index funds we can ultimately take a lot of expense — what we call drag — off of the participant’s account,” Schwab’s McCool said in the AP story. “That translates to more money in their account just by trimming the expense factor down.”
For more information on ETFs and retirement plans, visit our 401(k) category.
Max Chen contributed to this article.