Schwab Index Advantage also has an advice component. Participants' assets will be allocated among investment choices based on employer-provided information on their ages, savings rates, incomes and 401(k) balances, unless an employee opts out. Participants can then work with an adviser over the phone to add information, such as their risk tolerance, assets outside the plan and retirement goals, to fine-tune their asset allocations. Schwab Index Advantage also allows participants to save in FDIC-insured accounts at Schwab Bank.

“We're taking the low-cost indexed mutual funds, the bank product and advice, and combining those in a unique way,” Anderson says.

Fees will range from 20 to 25 basis points, he says, and the advice component another 40 to 45 basis points, bringing the plan's total expenses to 65 to 70 basis points. Anderson says that compares favorably to the cost of 401(k)s that don't provide advice, noting that Cerulli puts the average expense ratio for midsize 401(k)s—without advice—at 86 basis points.

Providing advice leads to better results for participants, Anderson says, citing research that shows participants who get advice save more and have a more diversified portfolio. And the information Schwab will get from the employer at the outset allows for a more personalized asset allocation than is provided by target-date funds, which rely solely on the participant's projected retirement date.

Terence Geenty, a senior investment consultant at Morningstar Investment Management who works with 401(k) plan sponsors, says a 401(k) made up solely of index funds also offers advantages to plan sponsors. From an employer's perspective as a fiduciary to the plan, index funds are cheaper and don't require as much oversight. And because index funds are “style-pure,” it's easier to use them to build asset allocations for participants, he says. Participants also have clearer expectations of indexed funds. “And when they have clear expectations, they're likely to use them more effectively,” he says.

Geenty says he rarely sees a line-up of all index funds among the plan sponsors he works with. And when Morningstar builds a line-up for a plan sponsor, it usually uses a mix of active and passive funds, with active funds likely to be utilized in “less efficient areas,” like emerging markets stocks or domestic small caps, he says.

Still, with the Labor Department scheduled to enforce new regulations later this year requiring plan sponsors to disclose 401(k) fees more fully, the lower price tag on index funds may prove persuasive. A survey of close to 100 large 401(k) plan sponsors by Callan Associates found that of the plans that made changes in their mix of active and passive funds last year, 44.8% increased their use of passive funds, while just 6.9% increased their use of active funds.