Although many individual investors use exchange traded funds to track or trade the markets, ETFs aren’t an option in most 401(k) retirement plans. ETFs haven’t yet cracked the 401(k) business, which is dominated by mutual funds, because of administrative and record-keeping challenges, says an industry executive.
ETFs comprise less than 1% of total assets in defined contributions plans, Neil Plein at Invest n Retire tells Bloomberg News.
“The biggest issue is that you have systems, primarily record-keeping systems, that were designed for mutual funds with end-of-day pricing, among other things,” Plein said in the Bloomberg interview. “When you have an ETF, you have an investment vehicle that trades intra-day, not end-of-day. The technology has needed to catch up to make ETFs available in retirement plans.”
However, ETFs are making greater inroads into 401(k) plans. [ETFs Make Strides in 401(k) Plans]
More companies are beginning to shift towards ETF 401(k) plans ahead of the new Department of Labor’s fiduciary and fee disclosure rules. [Why ETFs Could Hit $2 Trillion This Year]
Earlier this year, Charles Schwab Corp. said it was working on a 401(k) plan focused on ETFs. [ETFs: Coming to a 401(k) Plan Near You]
“When you’re talking about 401(k) plans and plan sponsors, this is a group that can sometimes be reluctant to go with new ideas like [ETFs],” Plein said in the Bloomberg report.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.