PANC 2011: Finally Time for ETFs?

Exchange-traded funds are not ready for 401(k)s yet.

That was the contention of Larry Steinberg, President, The Steinberg Financial Group, before attendees of the PLANADVISER National Conference. He said this is because too many issues haven’t been worked out yet. He’d rather see big players in the industry hash out the bugs first, he said.  

Steven Dimitriou, Managing Partner, Mayflower Advisors, noted that many advantages of ETFs in the retail space won’t carry over for retirement plans.  For example, on the retail side, investors can make trades intra-day like stocks and they don’t have to wait for the end of day price: however, in 401(k) plans, the recordkeeper often makes the day’s trades in batches, losing the pricing advantage.  

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While ETFs are touted as lower-cost investments, Dimitriou noted that since they trade like stocks there may be transaction fees. In addition, retail investors can control the tax treatment of ETFs, but that goes away in the retirement plan space.  

Just because they shouldn’t be mainstream doesn’t mean plan sponsors can’t find ways to use ETFs, panelists said. William Beale, Director, Henderson Brothers Retirement Plan Services, said that what’s probably coming is the use of ETFs as specialty investments.  

Stephen DesRochers, VP-Investments Advisory & Brokerage Services, UBS Financial Services, Inc., who moderated the PLANADVISER National Conference panel, added that sponsors can offer a brokerage window in which participants can choose ETFs. Collective trusts can also use ETFs.  

Dimitriou claimed fee disclosure will drive the growth of ETF use in retirement plans. However, custodial fees, advisory costs, recordkeeping administration costs, as well as transaction costs should be considered when comparing ETF fees to that of other investments, he said.

DoL Introduces Form 5500 Version Selection Tool

The U.S. Department of Labor has released the Form 5500 Version Selection Tool to help plan sponsors determine which version of the form to use and which schedule they should use.

The DoL said that with the change to an entirely electronic filing system, plus changes to the Form 5500, plan sponsor could use some extra guidance.

The DoL outlined four steps to use this tool: 

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  • In the plan filing field, enter the first day of the plan year for which you want to file. For Direct Filing Entity (DFE) filings, enter the last day of the plan year for which you want to file. The date should be entered in the mm/dd/yyyy format. 
  • If you are amending a previously filed Form 5500, check the box. 
  • If your plan is a Code 403(b) arrangement or if you are filing for a DFE, other than a Group Insurance Arrangement (GIA), check the appropriate box. If neither applies to your plan, leave the boxes unmarked. 
  • Select the get results box. A general description of what you are required to file will be displayed. The form year(s) that are available for you to file will be displayed in bold. If there are any prior year schedules that must be attached, they will be listed in the “Exceptions”. Any prior year schedules must be attached as a PDF file and are generally available at both www.efast.dol.gov and www.irs.gov. 

The DoL noted that the tool will not provide detailed instructions specific to a plan’s filing requirements.   

The tool is available at http://askebsa.dol.gov/FormSelector/.

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