Northern Trust will turn six mutual funds worth about $33 billion into ETFs; some 401(k)s may be cashed out

Northern Trust Asset Management plans to convert six of its mutual funds, together holding about $33 billion, into exchange-traded funds in early 2027, Bloomberg reported Friday. The funds' board approved the plan on Sept. 24, according to a prospectus supplement filed with the SEC on Sept. 25. Shareholders do not get a vote.

The six funds and their dates

The fund names signal the change for index investors: the new ETFs carry MSCI names, and the filing says that in some cases an ETF "will track a new underlying index." Northern Trust says each ETF's all-in fee will be equal to or lower than the current fund's expenses after reimbursement, and that the swap is structured to be tax-free for shareholders who receive ETF shares.

Who it actually hits: small-business retirement plans

The headline reads as good news for fund holders, and for most people with a brokerage account it is. The risk sits with people whose shares are held somewhere that cannot hold an ETF. The filing names three cases: brokerage accounts limited to mutual funds, fund-direct accounts held at Northern Trust as transfer agent (including fund-direct IRAs), and group retirement plans whose platform cannot hold ETFs.

That last group matters to employers. Not every 401(k) recordkeeping platform can hold ETFs, and the filing plans for that case directly. If a plan's menu includes one of these six funds and the platform cannot take the ETF, the filing says the holding will be liquidated for cash at net asset value. If the account cannot hold cash, that "may be treated as a distribution," which can bring taxes, withholding and penalties unless it is rolled over within 60 days.

There is a knock-on cost for everyone else too. The filing warns that cash redemptions ahead of a conversion may force the fund to sell holdings and realize gains, which could mean larger taxable capital gain distributions for shareholders who stay in taxable accounts.

What to do

If you sponsor a plan, check whether any of these six funds is on your menu. Then ask your recordkeeper, in writing, whether it can hold the ETF version, and get the answer before the dates in the right-hand column. If it cannot, the plan needs a replacement fund chosen and participants told before the conversion, not after. If you hold one of these funds directly, the filing recommends moving to a brokerage account at least a month before your fund's conversion date. Northern Trust says a detailed information statement will go to shareholders in the fourth quarter of 2026.

Sources: Northern Funds SEC filing (Form 497, Sept. 25, 2026), Bloomberg. This is market information, not investment or tax advice.