Proprietary Fund Usage

An employer has the option to choose its recordkeepers’ proprietary mutual funds, collective investment trusts (CITs) or separate accounts for the company plan’s investment lineup. A proprietary investment is one bearing the same name as the recordkeeper or third-party administrator (TPA). As is true when choosing any fund, selecting a proprietary fund must be done in the best interest of the participants and be documented as such.

In 2014, according to data from BrightScope—like PLANADVISER, a Strategic Insight company—65.4% of 401(k) plans included proprietary funds in their investment lineup, and the assets in those funds accounted for 26.1% of all plan assets. Larger plans were the most likely to offer proprietary funds, although this tendency was less evident in the largest plans, which included proprietary funds at about the same rate as the smallest plans did.

While plans with $250 million to $500 million in plan assets were significantly more apt to offer proprietary funds than were the smallest plans, participant investment in proprietary funds was similar in plans of both sizes. For all plan-size groups with less than $1 billion in assets, proprietary funds accounted for 32% through 38% of plan assets. Participants in plans worth over $1 billion held a lower share of their assets (18.9%) in proprietary funds. A similar pattern emerges when the variation across plans by number of plan participants is analyzed.