Cheaper Choice in 401(k)s
08/02/2010 0 comments
An increasing number of 401(k) plans offer investment options that look a lot like the typical mutual funds. But they're actually a whole different animal—and investors would be smart to know the difference. These alternatives are instruments from banks that are known as collective investment trusts or collective trust funds. They typically have lower expenses than funds, making them attractive to plan overseers and cost-conscious investors, who can see their returns enhanced.
Trusts can be less costly to operate because they have fewer regulatory disclosure demands than mutual funds; they are overseen by banking regulators instead of the Securities and Exchange Commission. Some of the biggest trusts are index funds—a commodity product where expenses are the biggest determinant of which funds outperform.
Still, there can be trade-offs for investors when trusts replace funds in 401(k) plans. Trusts can be harder to track and to compare with other investments. And representatives of the fund industry and the SEC suggest that they don't include all the consumer safeguards of mutual funds.
Trusts have boomed both in numbers of retirement plans offering them and in total dollars invested.
About half of the current collective-trust assets are in the Thrift Savings Plan for U.S. government employees and members of the military.
Viacom Inc., Time Warner Cable Inc., Nike Inc., Dow Chemical Co. and Hewlett-Packard Co. are among the major employers offering trusts to 401(k) participants.
Tags: 401K, retirement
comments 0
Or Start FREE 30-day trial now >>
