SURVEY SAYS: ETFs for Retirement Plans

Nearly all (96.3%) responding readers indicated their companies do not offer ETFs in their retirement plan lineups. If their companies did offer them, 33% said they did not know enough about ETFs to say whether they would invest in them or not. More than 22% each said they would invest in them if they were offered, they would not invest in them if they were offered, or it depends on what type of ETFs were offered.

Asked if they think ETFs in general are good options for investing retirement savings, one-third of respondents said yes, nearly three in ten (29.6%) said no, more than two in ten (22%) indicated they have no opinion, and nearly 15% reported they do not know.

Reasons respondents think ETFs are a good idea for retirement savings include:

• Another layer of diversification is a good thing;
• Low cost, transparency and wide array of asset classes; and
• The ability to convert the ETF share into the individual stocks.

• Collective trusts are lower-cost;
• Too much education required;
• Active trading still has merits in many asset classes; and
• Possible promotion of day trading.

One reader said: “I think ETFs, at this point, may be best suited for plans that have already won the battles with enrollment rates, asset allocation, and participant education.” Another contended “mutual funds can be found that are comparable in the index and institutional share class arenas.”

Most of those who made verbatim comments seemed to be on the side against using ETFs in retirement plans, though one reader suggested we just try them and see. Editor’s Choice goes to the reader who said: “You can lead a horse to a better mouse trap but don't put your eggs in the kettle black over the rainbow. It's retirement savings, not Wall Street! Keep it Simple and they'll come, to see monkeys fishing in a barrel. Rocket science is easier, me thinks.” 

Verbatim

We need to focus LESS on fancy investing strategies and MORE on just getting people to actually participate! That should be the number one focus.

Some of the primary benefits of ETF's are the ability to trade intra-day and the ability to slice the market into small segments. Neither of those attributes is important in a typical retirement plan. I would imagine most employers would not want their employees trading their retirement accounts throughout the day, when they should be working. With respect to the ability to slice the market into small segments, that may be great for individual investors with a strong investment background, but it would not be prudent to offer a wide swath of options to plan participants, most of which would have no idea how to use the funds and would likely be overwhelmed by the number of investment options.

I just want our participant's to have every chance to seize that golden retirement for themselves. If my parent's had only had that opportunity, they would feel so much more secure, and so would I!

ETF's?! Sounds Sci-Fi when we're still trying to move from variable annuity products to mutual funds!

Anything that helps drive down costs to retirement savers is a good thing, esp. when money market yields are zero.

I think most people don't understand their plans and products in them. Why not add ETFs and see how things play out?

Once we learn more if these prove to be good alternatives (maybe lower costs?) we might add some. If they are the least bit complicated though for the average person to understand compared to current fund choices then I'd be hesitant. Not everyone has the financial "smarts" to grasp these finer points. We don't truly fulfill fiduciary duties by changing these plans to the point that the participant can't understand enough to make good choices. For instance we added the self-directed investment option and the only person electing that invested in the MONEY MARKET fund. Her fees were enormous compared to her earnings - very poor choice. Did we really help her by offering this?

Fine if used to access certain asset classes at low cost. Not fine if used to day-trade one's retirement money.

You can lead a horse to a better mouse trap but don't put your eggs in the kettle black over the rainbow. It's retirement savings, not Wall Street! Keep it Simple and they'll come, to see monkeys fishing in a barrel. Rocket science is easier, me thinks.