401(k) Plan Providers Increasingly Turn to Collective Trusts

Attracted to the low costs of collective trusts, as well as the ability for investors to trade them daily at a time when many mutual funds are imposing short-term trading restrictions, 401(k) plans are increasingly turning to these alternatives, according to a white paper from AST Capital Trust Co.

Collective trusts can charge lower fees than mutual funds since they are expressly designed for 401(k) plans and do not have to meet the costs of servicing retail clients. In addition to these lower costs, plan sponsors like collective trusts because they permit investors to trade them daily, whereas most mutual funds have imposed short-term trading restrictions and redemption fees in response to Rule 22c-2.

“It is no surprise that the popularity of collective funds has grown over the past few years,” said Steve Ferber, executive vice president of collective fund services at AST Capital Trust.

“Institutional funds, like collective trusts and separate accounts, are increasingly popular with mid- and large-sized employers, as they are significantly less expensive than mutual funds,” said Pamela Hess, director of retirement research at Hewitt Associates. “A seemingly small number of basis points saved over time can lead to meaningful differences in participant savings.”