Employers are increasingly looking to add index funds, exchange-traded funds or other low-cost selections to their 401(k) plans, according to a survey by Hewitt Associates. Seventeen percent said they are likely to replace at least one of their actively managed funds with an index fund this year, up from 8% who said so a year ago.
This could mark a big change for the 401(k) industry, which currently has 90% of its $1.5 trillion in assets in actively managed funds, The Wall Street Journal reports. Of course, this won’t change overnight, but sponsors’ appetite for low-cost funds is unquestionably growing. And this is despite the revenue sharing payments by some actively managed funds to plan sponsors as an incentive for including them on the platform.
Regulators are taking a hard look at 401(k) fees, and there is a bill in the House that would require administrators to clearly disclose fees. This could encourage more plans to include lower-cost funds, said Rep. George Miller (D-Calif.), chairman of the House Education and Labor Committee, which sponsored the bill. Defined contribution plans “should not just be the happy hunting grounds for fees and commissions,” Miller said.