That ETFs eventually will get into the 401(k) market is “somewhat inevitable,” said David Abner, head of global ETFs and funds at Northern Trust Asset Management, during a panel discussion at Bloomberg’s ETFs in Depth event in New York on Dec. 12.
“So, what’s in 401(k)s now, right?” Abner said. “Generally, it’s a … mutual fund-led market.”
ETFs and mutual funds are “cousin products,” he said, adding that “as the ETF industry grows, they become closer together.” As those products come closer together and investors know more about them, “that’s … a solution that will come over time,” Abner said.
Another panelist, Anna Paglia, executive vice president and chief business officer at State Street Global Advisors, agreed.
“I do have a dream to see ETFs in 401(k) plans,” Paglia said during the panel titled "Leading Through Change: Developing ETF Solutions in an Evolving Market."
“We are so focused on the wrapper. Let’s divorce the wrapper from the content for a minute,” she said adding that the issue is “a technology issue, it’s not a content issue.”
Paglia pointed to an exemptive relief application that SSGA has filed with the Securities and Exchange Commission. SSGA’s relief application is “very unique” in that SSGA is asking the SEC to consider a retirement share class of SSGA’s ETFs, she said.
“What problem are we going to solve with that? We are going to solve the technology problem, which is that 401(k) plans … cannot buy in the open market, they need to buy at (net asset value), this is why they buy mutual funds,” Paglia said.
However, “if you build a construct where buying the ETF is just like buying the mutual fund, you have removed those constraints,” she said.
Bloomberg reporter Vildana Hajric, who moderated the discussion, asked Paglia what a potential timeline might look like.
“Well, that’s the $1 billion question,” Paglia replied, “but … I’m hoping sometime next year.”
While it’s rare to see ETFs in a 401(k) plan, it’s not unheard of, as Pensions & Investments data shows. Eli Lilly had 1.2% of its $10.6 billion in 401(k) assets placed in ETFs, according to P&I’s 2023 top 1,000 survey of the largest retirement plan sponsors.
Data Editor Larry Rothman contributed to this report.
