Why 401(k) plans are the 'final frontier' for exchange-traded funds

Published On Oct 17, 2024, 10:49 AM

The article discusses the underutilization of exchange-traded funds (ETFs) in 401(k) retirement plans, despite the growing popularity of ETFs in the broader investment landscape. Currently, around 65% of 401(k) assets are in mutual funds, highlighting a significant opportunity for ETFs, which capture about 32% of the broader market. Experts point out that the benefits of ETFs, such as tax advantages and flexibility, are largely irrelevant in the context of 401(k) accounts, which already enjoy tax benefits and are typically long-term investments. Additionally, structural challenges such as technology limitations and how fees are structured in traditional mutual funds pose roadblocks for the adoption of ETFs in these plans. Consequently, experts see workplace retirement plans as a largely untapped market for the ETF sector.