ETFs Target Retirement Market

Although 401(k) plans can't take all the credit for the popularity of mutual funds, there's no doubt the industry wouldn't be the behemoth it is without them. When 401(k) plans were introduced in 1981, the mutual fund industry had been around for almost 60 years but had just $135 billion under management. Over the next 25 years or so, the industry's assets increased more than 74-fold. Small wonder ETF providers are looking for a piece of the action.

David Wray, president of the Profit Sharing/401(k) Council of America, says these plans are becoming more open to the idea of offering ETFs as investment options, although relatively few actually do so. "People are looking at different approaches than what was traditional," he says. "At the moment, most companies are in the talking stage, but a lot are certainly thinking about it."

Not everyone believes ETFs will -- or should -- become as prevalent in retirement plans as mutual funds, however. "When you think about it -- and I don't think most people do -- ETFs are index funds with one difference: They can be traded all day long," says John Bogle, founder and former chief executive of the index fund giant Vanguard. "Why would anyone want to do that in their 401(k)?"

Bogle, who now heads the Bogle Financial Markets Research Center, says the experience of 401(k) plans that let participants actively trade stocks isn't encouraging. "It gives people more choice than they can handle," he says. "And the evidence is overwhelming that people are performance-following."

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