While many investors have flocked to exchange-traded funds, they haven’t gained much ground with 401(k) plan participants.

Exchange-traded funds, or ETFs, debuted in the early 1990s and have since captured about $10 trillion.

Mutual funds hold about $20 trillion, but ETFs have chipped away at their dominance: ETFs hold a 32% market share versus mutual fund assets, up from 14% a decade ago, according to Morningstar Direct data.

“ETFs are becoming the novel structure to be used in wealth-management-type accounts,” said David Blanchett, head of retirement research at PGIM, Prudential’s investment management arm.

However, that same zeal hasn’t been true for investors in workplace retirement plans, a huge pot of largely untapped potential for the ETF industry.

At the end of 2023, 401(k) plans held $7.4 trillion, according to the Investment Company Institute, or ICI, and had more than 70 million participants. Other 401(k)-type plans, such as those for workers in universities and local government, held an additional $3 trillion, ICI data shows.

But hardly any of those assets are in ETFs, experts said.

“There’s a lot of money [in workplace plans], and there’s going to be more,” said Philip Chao, a certified financial planner who consults with companies about their retirement plans.

“It’s the final frontier [for ETFs], in the sense of trying to capture the next big pool of money,” said Chao, the founder of Experiential Wealth, based in Cabin John, Maryland.

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About 65% of 401(k) assets were invested in mutual funds at the end of 2023, according to ICI data. The group doesn’t report a corresponding statistic for ETFs.

A separate report from the Plan Sponsor Council of America, a trade group representing employers, suggests ETFs hold just a tiny fraction of the remaining share of 401(k) assets.

The PSCA report examines the relative popularity of investment structures, such as mutual funds and ETFs, across about 20 types of investment classes, from stock funds to bond and real estate funds, in 2022. The report found that 401(k) plans used ETFs most readily for sector and commodity funds — but even then, they did so just 3% of the time.

Mutual funds, collective investment trust funds and separately managed accounts held the lion’s share of the 401(k) assets across all investment categories, PSCA data shows.

Such investment vehicles perform the same basic function: They’re legal structures that pool investor money together.

However, there are some differences.

For example, ETFs have certain perks for investors relative to mutual funds, such as tax benefits and the ability to do intraday trading, experts said.

However, those benefits are “irrelevant” in 401(k) plans, Blanchett said.

The tax code already gives 401(k) accounts a preferential tax treatment, making an ETF advantage relative to capital gains tax a moot point, he said.

Blanchett said 401(k) plans are also long-term accounts in which frequent trading is generally not encouraged. Just 11% of 401(k) investors made a trade or exchange in their account in 2023, according to Vanguard data.

Additionally, in workplace retirement plans, there’s a decision-making layer between funds and investors: the employer.

Company officials choose what investment funds to offer their 401(k) participants — meaning investors who want ETFs may not have them available.

There may also be technological roadblocks to change, experts said.

The traditional infrastructure that underpins workplace retirement plans wasn’t designed to handle intraday trading, meaning it wasn’t built for ETFs, Mariah Marquardt, capital markets strategy and operations manager at Betterment for Work, wrote in a 2023 analysis. Orders by investors for mutual funds are only priced once a day, when the market closes.

There are also entrenched payment and distribution arrangements in mutual funds that ETFs can’t accommodate, experts said.

Mutual funds have many different share classes. Depending on the class, the total mutual fund fee an investor pays may include charges for many different players in the 401(k) ecosystem: the investment manager, plan administrator, financial advisor and other third parties, for example.

That net mutual fund fee gets divvied up and distributed to those various parties, but investors largely don’t see those line items on their account statements, Chao said.

Conversely, ETFs have just one share class. They don’t have the ability the bundle together those distribution fees, meaning investors’ expenses appear as multiple line items, Chao said.

“A lot of people like to have just one item,” Chao said. “You feel like you’re not paying any more fees.”

“It’s almost like ignorance is bliss,” he said.

Many Americans face a retirement savings shortfall. However, setting aside more money could get easier for some older workers in 2025.

Enacted by Congress in 2022, the Secure Act 2.0 ushered in several retirement system improvements, including updates to 401(k) plans, required withdrawals, 529 college savings plans and more.

While some Secure 2.0 changes have already happened, another key change for “max savers,” will begin in 2025, according to Dave Stinnett, Vanguard’s head of strategic retirement consulting.

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Some 4 in 10 American workers are behind in retirement planning and savings, according to a CNBC survey, which polled roughly 6,700 adults in early August.

But changes to 401(k) catch-up contributions — a higher limit for workers age 50 and older — could soon help certain savers, experts say. Here’s what to know.

Employees can now defer up to $23,000 into 401(k) plans for 2024, with an extra $7,500 for workers age 50 and older.

But starting in 2025, workers aged 60 to 63 can boost annual 401(k) catch-up contributions to $10,000 — or 150% of the catch-up limit — whichever is greater. The IRS hasn’t yet unveiled the catch-up contribution limit for 2025.  

“This can be a great way for people to boost their retirement savings,” said certified financial planner Jamie Bosse, senior advisor at CGN Advisors in Manhattan, Kansas.

An estimated 15% of eligible workers made catch-up contributions in 2023, according to Vanguard’s 2024 How America Saves report.

Those making catch-up contributions tend to be higher earners, Vanguard’s Stinnett explained. But they could still have “real concerns about being able to retire comfortably.”

More than half of 401(k) participants with income above $150,000 and nearly 40% with an account balance of more than $250,000 made catch-up contributions in 2023, the Vanguard report found.

Another Secure 2.0 change will remove the upfront tax break on catch-up contributions for higher earners by only allowing the deposits in after-tax Roth accounts.

The change applies to catch-up deposits to 401(k), 403(b) or 457(b) plans who earned more than $145,000 from a single company the prior year. The amount will adjust for inflation annually. 

However, IRS in August 2023 delayed the implementation of that rule to January 2026. That means workers can still make pretax 401(k) catch-up contributions through 2025, regardless of income.

Americans often splurge on gifts during the holidays.

This year, holiday spending from Nov. 1 through Dec. 31 is expected to increase to a record total of $979.5 billion to $989 billion, according to the National Retail Federation.

Even as credit card debt tops $1.14 trillion, holiday shoppers expect to spend, on average, $1,778, up 8% compared to last year, Deloitte’s holiday retail survey found.

Meanwhile, 28% of holiday shoppers still haven’t paid off the gifts they purchased for their loved ones last year, according to another holiday spending report by NerdWallet. 

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Buy now, pay later is now one of the fastest-growing categories in consumer finance and is only expected to become more popular in the months ahead, according to the most recent data from Adobe. Adobe forecasts BNPL spending will peak on Cyber Monday with a new single-day-record of $993 million.

However, buy now, pay later loans can be especially hard to track, making it easier for more consumers to get in over their heads, some experts have cautioned — even more than credit cards, which are simpler to account for, despite sky-high interest rates.

To be sure, credit cards are one of the most expensive ways to borrow money. The average credit card charges more than 20% — near an all-time high.

Alternatively, the option to pay in installments can make financial sense, especially at 0%. 

And yet, buy now, pay later loans “are just another form of credit, disguised as something for free,” said Howard Dvorkin, a certified public accountant and the chairman of Debt.com.

The more BNPL accounts open at once, the more prone consumers become to overspending, missed or late payments and poor credit history, other research shows.

If a consumer misses a payment, there could be late fees, deferred interest or other penalties, depending on the lender. In some cases, those interest rates can be as high as 30%, rivaling the highest credit card charges. 

“This is just another way for financers to put their hands in the pocket of consumers,” Dvorkin said. “It’s a trojan horse.”

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