From CNBC: 2024-10-17 10:49:16

Despite a surge in investors flocking to exchange-traded funds (ETFs), participation among 401(k) plan participants remains low. ETFs have amassed around $10 trillion in assets, gaining market share from mutual funds, but only constitute a tiny fraction of the $7.4 trillion held in 401(k) plans by over 70 million participants.

While mutual funds, collective investment trust funds, and separately managed accounts dominate 401(k) assets, ETFs offer advantages like tax benefits and intraday trading. However, in the 401(k) landscape, these benefits are deemed irrelevant due to preferential tax treatment and limited trading activities, with employer-selected investment options also restricting ETF availability.

The traditional infrastructure of workplace retirement plans, designed for mutual funds, presents technological hurdles for accommodating ETFs. Mutual funds allow for complex fee structures distributed among various parties, shielding investors from seeing these charges on their account statements. In contrast, ETFs have a single fee structure, laying bare these expenses and potentially affecting investors’ perception of fees.

Read more: Why 401(k) plans are the ‘final frontier’ for exchange-traded funds