Recent research shows that retail mutual funds were offered by 58% of large defined contribution plans in 2007. That figure is down from 65% just 4 years earlier. At the same time, another kind of investment is on the rise, one that may be new to you, or may give you a sense of nostalgia.
Collective funds, a predecessor of today's mutual funds, used to be popular investment vehicles in retirement plans. As expenses for mutual funds increase, collective funds seem to be making a comeback. In 2003, 33% of large defined contribution plans used collective funds as an investment vehicle, and that number rose to 39% by 2007.
Like mutual funds, collective funds invest in stocks, bonds and securities with pooled assets of the investors. They are not sold to the public at large, though, and are available only through retirement plans. That means the Securities and Exchange Commission does not regulate them. Because of these differences, collective funds are generally substantially less expensive investment options than are mutual funds.
Unlike mutual funds, investors can't easily track the performance of collective funds. They are not commonly listed in newspapers or on investment websites, so information about them is harder to obtain. They are not required to send out prospectuses, and their assets may not be rolled over into an Individual Retirement Account when the participant terminates employment. However, the costs associated with collective funds are lower than those charged for investing in mutual funds. That can have a substantial impact on the ultimate value of a participant's retirement account.
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