In the News 2009
The ETF Exchange
Though the jury’s still out on how valuable and efficient they are‚ exchange-traded funds are starting to
be offered by employers as part of their 401(k)s.
by Marlene Prost – December 2009
“When Navmar‚ a naval-engineering company based in Chester‚ PA.‚ switched five years ago to a 401(k) plan offering exchange-traded funds‚ some employees worried they were being used as guinea pigs.”
Even though mutual funds dominate the 401(k) market‚ Navmar’s in-house search committee decided to look at its options and chose an all-ETF 401(k) plan offered through Portland‚ Ore.-based Invest n Retire‚ a record-keeper and pioneer in the field.
At first‚ according to Michael Kelley‚ Navmar’s director of administration‚ a lot of the employees were skeptical about trying something new and untested. With a growth in the fund from $3.2 million to more than $10 million over five years‚ the skeptics have turned into believers.
As other companies are trying to recoup market losses in their 401(k) plans‚ many are giving ETFs a serious look. Invest n Retire client‚ Raylon‚ a wholesale beauty product distributor in Reading‚ PA‚ switched to an ETF plan after years with a traditional 401(k). “Before‚ people were investing‚ and their balances didn’t seem to grow. A lot of profits were being eaten up by fees‚” said Chris Raszkiewicz‚ Raylon’s vice president for finance.
Retirement Planning Challenging the Status Quo
In Conversation with Invest n Retire® CEO Darwin Abrahamson
by Britta Stromeyer Esmail‚ feature writer – Nov 4‚ 2009
“Mutual funds dominate the retirement market tying payment for plan services to revenue sharing practices.” However‚ a system which relies on hiding fees has proved to be a dismal failure; resulting‚ in more government oversight which seeks to move the retirement industry to lower costs.
Due to their transparency and lower fees, the retirement industry is beginning to embrace exchange traded funds (ETFs). But adding ETFs in 401(k) plans proved impossible for recordkeepers until Invest n Retire‚ LLC‚
a Portland‚ Ore. recordkeeper‚ launched its proprietary‚ patent pending system in 2004.
“Invest n Retire’s system for managing tax deferred retirement plans was designed specifically for trading ETFs‚” said INR’s founder and CEO Darwin Abrahamson. As a pioneer in the retirement market‚ INR designed a system which cost-effectively trades ETFs.
In addition to lowering costs and thereby increasing retirement savings‚ INR seeks to decrease the plan sponsor’s fiduciary responsibility by transferring the fiduciary duties for selecting and managing the plan’s investment options to investment experts. INR is meeting this goal by adding the services of ERISA §3(38) investment fiduciaries as independent service providers to the plans on its system.
ETFs and 401(k)s: Finally Ready for Prime Time?
by Dave Nadig – August 2009
With low cost and transparency‚ you’d think ETFs and 401(k)s are a match made in heaven. However, ETFs have a long way to go
before cracking the mutual-fund-dominated retirement market: Current estimates place ETFs at less than 5% of all 401(k) assets.
The explosion of ETF assets outside qualified plans is well-documented so it is inevitable that the tide will turn.
Even amid the worst market turmoil in 2008, ETF assets were up $178 billion‚ while global mutual funds assets lost $320 billion.
Susan Wagner‚ BlackRock Chief Operations Officer‚ sited operational problems. “... back-office solutions
are tailored for mutual funds‚ which trade once a day at closing and can be bought or sold in fractional shares ...”
“The main issue was always one of technology‚” said Darwin Abrahamson‚ CEO of Invest n Retire‚ LLC‚
a 401(k) record-keeper in Portland‚ Ore. who built a record-keeping system to handle ETF trading.
More Index Funds Sought for 401(k)s
by Eleanor Laise – July 18‚ 2009
Despite clear evidence from studies that index funds outperform their actively managed rivals‚ roughly 90% of the $1.5 trillion in 401(k) plan assets are in actively managed mutual funds.
Fund companies aren’t likely to relinquish their promotion of actively managed funds since the funds charge higher fees. To avoid breaking out fees separately‚ which might prompt employers to more closely examine plan costs‚ the funds pay for services through revenue sharing arrangements.
The climate may be changing. Since announcing its acquisition of indexing giant Barclays Global Investors‚ BlackRock Inc.‚ known for actively managed products‚ is stressing the potential for index funds’ growth in retirement plans.
One service provider‚ Invest n Retire‚ LLC‚ located in Portland‚ Ore.‚ has long recognized the potential of indexing strategies in 401(k) plans and began offering ETF-based plans in 2003.
A Publication of Institutional Investor‚ Inc.
Recordkeeper Releases List of Questions for ETF Providers
JUNE 8‚ 2009 – VOL. XX‚ NO. 22
Invest n Retire‚ LLC‚ a recordkeeper in Portland‚ Ore.‚ released a checklist of questions to ask a provider offering exchange traded funds (ETFs) as investment options in tax-deferred retirement accounts, such as 401(k) plans.
Darwin Abrahamson‚ ceo and founder‚ explained that old legacy recordkeeping software‚ which was built to trade mutual funds at the closing price‚ is inadequate for trading ETFs which trade throughout the day at market price.
Invest n Retire® provides answers to the same checklist of questions.
ETF giant iShares is going after 401(k) market
Providers try to wrest a piece of the action from mutual funds
by David Hoffman‚ reporter – May 10‚ 2009
Barclays Global Investors (BGI) is convinced that exchange traded funds are poised to break the stranglehold that mutual funds have on 401(k) retirement plans.
Darek Wojnar‚ head of product research and strategy at iShares‚ expressed BGI’s viewpoint‚ "The massive losses in 401(k) plans — losses that can be attributed to mutual funds that in many cases are more expensive than ETFs — work to the advantage of ETFs."
However‚ industry experts point out that iShares will have a tough time getting ETFs into 401(k) plans. David Wray, president of the Profit Sharing/401k Council of America‚ points out‚ "The fundamental issue is a practical one. Are the majority of systems set up to do ETF record keeping?"
Darwin Abrahamson‚ chief executive of Invest n Retire‚ LLC of Portland‚ Ore.‚ agrees, "I’m glad that everyone realizes ETFs should be in 401(k)s. My biggest concern is‚ all these companies are doing this incorrectly."
"The iShares 401(k) program seems headed down a particularly troubling path that resembles a previous effort to break into the 401(k) market," Mr. Abrahamson said.
In 2007‚ iShares and BenefitStreet‚ a San Ramon‚ Calif.-based 401(k) recordkeeper (now restructured as NextStep Defined Contribution Inc.)‚ announced a partnership to create a platform that would make ETFs available to 401(k) plans.
The joint venture bore little fruit with BenefitStreet announcing to its shareholders a few months later that it was suspending its efforts to take on new plans for ETFs.
Fixing 401(k)s
Darwin Abrahamson‚ CEO of Portland-based Invest n Retire‚ shared his views with Research about the state of the 401(k) market and where it’s headed.
by Ronald DeLegge – Published in the May 1‚ 2009 Issue of Research Magazine
As a sagging economy and stock market have turned up the heat on 401(k) retirement plans‚ U.S. lawmakers have been
looking for ways to shore up America’s ailing retirement system through new legislation.
"The Congressional Budget Office estimated during the fourth quarter of last year that workers had lost $2 trillion in a span of 15 months from falling stock markets." With 55 million people participating in 401(k) plans‚ the
implications are huge.
Abrahamson agrees that 401(k) plans need work. "The solution to the retirement crisis is simple and only requires that employers get rid of poor investment choices‚ which carry high costs‚ and provide employees with asset allocation models which are managed by independent fiduciaries."
Abrahamson also pointed out that low contribution rates present a significant problem which The Pension Protection Act of 2006 (PPA) is attempting to solve by removing obstacles to automatic enrollment and encouraging automatic contribution escalation.
Special issue 2009
Exchange Rates
ETFs continue to be touted as the next best investment for retirement plans‚ but they are
slow to gain traction.
by Louis Berney – April 2009
Three decades ago‚ when the 401(k) market was in its infancy‚ most plan assets were invested in stable value and insurance contracts.
Two decades later the bulk of retirement dollars are invested in mutual funds.
But times continue to change. For more than a decade industry analysts have been predicting that a third investment class will consume defined contribution assets: exchange-traded funds (ETFs).
According to Darwin Abrahamson‚ CEO of Invest n Retire‚ a major provider of ETFs in retirement plans‚ “We’re not even a blip on the radar right now‚ but the use of ETFs in 401(k) plans is going to explode over the next few years.”
As Abrahamson pointed out $230 billion moved out of equity mutual funds last year‚ while ETFs gained $134 billion.
A number of providers are offering collective trusts as the avenue for including ETFs in 401(k) plans. However‚
Abrahamson disagrees that a collective trust is the best choice.
Abrahamson’s solution is to allow advisors and independent investment fiduciaries to construct ETFs models using its proprietary software. Result: plan participants own whole and fractional shares of the ETFs which make up each model.
ENT Resources Offers Member Practices a 401(k) and Profit-Sharing Plan
March 2009 —Vol.28 No. 3
Through the hard work and determination of ENT Resources‚ Inc. (ENTRI)‚ the organization announced that it is introducing the
Academy Benefit Partners 401(k)
and PSP to its physician members.
ENTRI‚ a for-profit subsidiary of the Academy‚ works with physicians to identify products and services which assist them in running their business. One area of concern for physicians is providing a retirement program for their employees which is beneficial‚ at a reasonable cost.
To cost-effectively meet this challenge‚ ENTRI created a multiple-employer‚ safe harbor plan which provides the physicians with numerous advantages compared to a traditional single-employer plan. Under the ABP Plan‚ ENTRI acts as the plan sponsor and assumes the fiduciary responsibility for plan compliance
and operation.
A 401(k) plan has many moving parts which are required to ensure smooth operations. ENTRI integrates the services of other independent firms to provide these services.
Invest n Retire® provides recordkeeping services‚ TD Ameritrade Trust Company acts as the custodian‚ McLean Asset Management Corporation acts as the investment advisor and independent fiduciary‚ and Retirement Solution Advisors provides third-party administration.
INR in Talks with Multiple Employer Plan
February 23‚ 2009 Vol. V‚ No. 7
Portland‚ Ore.-based ETF recordkeeper Invest n Retire® is in discussions to roll out its multiple employer plan‚
TPC Qualified Plans 401(k) PSP‚ to the San Diego World Trade Center.
The plan will be made available to members with a minimum of $1 million in plan assets. The San Diego World Trade Center has
roughly 30 defined contribution plans with total assets of more than $100 million.
McLean Asset Management acts as an independent fiduciary for the plan and has accepted the fiduciary responsibility for the
investment options offered in the plan. McLean designed age-based asset allocation models for the plan. TD Ameritrade Trust Company is the custodian.
ETF Talk: Change We Can Believe in for 401(k)s
January 29‚ 2009
Exchange traded funds (ETFs) have hurdles which they must overcome before their use in 401(k) plans becomes common place. If the drawbacks are resolved‚ the ETF industry would gain increased working capital‚ heightened revenues and earnings‚ and an enlarged market share at the expense of mutual funds.
Mutual fund companies recognize the competitive threat and counter that they provide the same service as ETFs with many low-cost‚ index-tracking funds.
One recordkeeping firm‚ Invest n Retire®‚ in Portland Ore.‚ has developed technology
to trade ETFs cost-effectively in 401(k) plans. The firm’s software allows ETFs to be traded in real-time at institutional pricing.