RPG Consultants, a 401(k) plan administrator, is speaking to two ETF providers about getting exchange traded funds into 401(k) plans.
Alvin Rapp, CEO of RPG Consultants, declined to say which firms he is speaking to, but noted that ETFs can offer cost advantages over mutual funds.
For smaller 401(k) plans -- those with less than $50 million -- that are usually sold by advisers, the cost savings can be large, he says.
In November, RPG signed a deal with XShares Advisors to get the firm's TDAX Independence ETFs onto RPG's platform.
The TDAX ETFs have expense ratios of 0.65%, while target-date funds can be 1% or more.
For the Independence ETFs, investors put money into a portfolio that has a date close to when they want to retire.
Larger third-party administrators don't offer ETFs, Rapp says, in part because they behave like single stocks that trade throughout the day. Funds on other hand, price once daily.
But Rapp says there is room for ETFs in retirement plans. "It will just require a lot of education for advisers," he said.
He adds that he doesn't expect ETFs to make up a majority of the options in 401(k)s, though he could see them taking up a large minority.
"A lot of this will happen over time," he said. The big market for ETFs will likely be 401(k) plans with $50 million in assets or less as fund costs are often higher and those plans are sold to businesses through financial advisers.
Total ETF assets are $571.1 billion vs. $11.73 trillion in mutual funds, according to the Investment Company Institute.
Anthony Dudzinski, CEO of XShares Advisors, says the XShares ETFs are on the platforms of BenefitStreet and Merrill Lynch as well as RPG Consultants.
He adds that the ETFs aren't yet in any 401(k)s, but the buying cycle is a long one as it takes retirement plans several months to make changes.
"We haven't yet closed anything, but we're in a number of negotiations," he said.
Dudzinski says one goal is to make target-date ETFs to become the default investment option for 401(k) plans.
Under the terms of the Pension Protection Act of 2005, plans can choose one investment option as a default for employees who don't pick anything for their 401(k)s.
Dudzinski also says there's some anecdotal evidence that the Independence ETFs are getting into individual retirement accounts.