Mary Beth Franklin: Will 401(k) fee disclosure boost index funds?

There has been a sudden interest in index fund offerings as part of investment line-ups for retirement plans, says Rich Rausser, Senior Vice President of Client Services at Pentegra Retirement Services, a provider of retirement products and services to financial institutions and organizations

Upcoming Department of Labor fee disclosure rules will compel plan fiduciaries to look more closely at fees associated with their retirement plans and that may prompt many to consider lower cost options, Rausser said. Many providers who previously focused on actively-managed funds are now adding new product offerings with lower-cost index funds.

“Indexing has always made sense,” said Rausser. “It keeps costs low, simplifies the investment choice for plan sponsors and participants, offers broad diversification, and delivers consistently superior performance over time – – all important attributes for the long-term focus necessary for smart retirement plan investing.”

A good indexed investment strategy uses institutionally priced investment vehicles whenever possible to minimize investor cost and maximize investment return over the long term, Rausser said. Institutionally managed index funds eliminate the higher fees associated with active management, 12b-1 costs for additional marketing expenses, administrative or mutual fund overhead charges, excessive brokerage commissions ,and additional sales loads, he added.