KnowHow Archive

Plan Sponsor Guide Participant Guide

Exchange "Rate"

Should your retirement plan include exchange-traded funds?

Illustration by James Yang

For well over a decade now (almost two, in fact), we have been writing about exchange-traded funds, or ETFs.

However, while ETFs have long been a valuable portfolio management tool, and are increasingly touted to retail investors, they have been slow to take root in 401(k) programs, despite several key advantages vis-à-vis the ubiquitous mutual funds dominating nearly every plan investment menu.

To explain that apparent “failure,” critics have pointed to a series of operational differences that allegedly have complicated the inclusion of ETFs alongside their mutual fund cousins. ETF ­proponents have, for nearly as long, seen such rationales as a sort of self-fulfilling prophecy for the status quo.

Personally, I think ETFs have been slow to take hold for a very simple reason: They are “different.”

Whether you have ever seriously considered their inclusion in your retirement plan menu or not, ETFs do offer plan sponsors and plan participants alike some unique opportunities, even as they are increasingly touted as a credible 401(k) investment alternative by personal finance columnists.

This month’s Know How takes a look at some of these differences—and opportunities—to help you and your participants better understand your choices. As always, I encourage and appreciate your feedback!

Nevin E. Adams