Industry pundits have prognosticated that exchange-traded funds (ETF) would replace mutual funds for almost a decade now. But their investment vehicle of choice has faces a major stumbling block: ETFs aren’t offered by most 401K plans.

Savers have squirreled away almost $3 trillion in the tax-advantaged accounts, making 401Ks the key to growth for any retail investment vehicle. But ETFs have faced major challenges breaking into that market; real time pricing poses a major challenge for plan administrators and a lack of actively managed ETFs options–actively managed mutual funds account for the lion’s share of assets in 401Ks–have hindered growth.

These obstacles are being surmounted, though. Administrators are finding ways to overcome the record-keeping and trading issues that come along with real-time pricing, and Sharebuilder, WisdomTree and Vanguard have added ETF options to some of the 401K plans they administer. The ETF industry itself is taking action, addressing the lack of actively managed funds by rolling out 26 options that cover stocks, bonds and commodities and even hedge fund-like vehicles.

As some barriers become less challenging, new ones spring up: The ETF field has widened in recent years, attracting not only greater investor attention but that of regulators as well. On March 25, the Securities and Exchange Commission (SEC) announced it will defer review of exemptive relief filings for ETFs, mutual funds and closed-end funds making extensive use of derivatives.

Derivatives are primarily used to build leverage into a fund. A major lesson learned during the recent financial meltdown–the hard way, through lawsuits–is that leverage is extremely dangerous, particularly when investors don’t account for how it’s calculated in fund pricing. Although the review is ostensibly directed at all funds, leveraged ETFs are at the heart of the inquiry.

ProShare Advisors is one of the best examples of the problems in that space. Known for offering both long and short ETFs that utilize as much as 300 percent leverage, ProShare faces a raft of lawsuits over those very same funds. ProShares UltraShort Real Estate (NYSE: SRS) demonstrates the firm’s–and investors’–woes.

Because it’s designed to deliver 200 percent of the inverse performance if the Dow Jones US Real Estate Index–the fund should go up by twice the amount of the index’s decline–the average person could reasonably expect the fund to perform spectacularly well when real estate prices are in a secular freefall.

According to a class action lawsuit filed in a New York federal court, during the period from Jan. 2, 2008, to Dec. 17, 2008, when the Dow Real Estate index declined 39 percent, ProShares UltraShort Real Estate Fund lost 48 percent. According to the scheme, it should have appreciated about 78 percent. This disparity has led to allegations that ProShares failed to adequately disclose how fund returns are calculated.

How could this happen?  The answer concerns the magic of daily compounding. The fund’s goal is generate a return equal to -200 percent of the return of its underlying index for a single day. Based on that math, it takes only a few flat to moderately up periods, even in a long string of losing days, for the fund to generate a loss over the long term.

I don’t believe ProShares failed to adequately disclose that risk in a legal sense; actually, I think the problem stems from the fact that it adhered to the letter of the law. These sorts of funds, however, have drawn particular scrutiny from the SEC. As more and more investors have turned to the courts for redress, the agency has been forced to step in–and this isn’t necessarily a bad thing. It must not overreach, however, to curb the behavior of a few questionable actors.

Ultimately, the deferral of the SEC’s review means little for actively managed equity ETFs, most of which don’t use derivatives. It does throw a monkey wrench at new actively managed commodity, bond and so-called alternative strategy ETFs that emulate hedge funds.

Commodity funds are perhaps the most in need of derivatives. Although some funds do hold physical commodities, in most cases to do so makes little economic sense. The sheer expense of holding large quantities of grain or oil in storage would eat up a large chunk of any returns generated or, in the case of smaller funds, completely outstrip them.

For this reason, most passive commodity funds available today hold some combination of futures contracts, typically the next three months’ worth. They have little to no leeway to adjust their holdings to avoid contango and other issues that can arise from that inflexibility. The ability to utilize a broader range of derivatives to implement active management in commodity ETFs could greatly enhance their performance–and ultimately make them much more useful for investors.

Derivatives are also extremely important for bond funds. Bond-fund managers are among the most frequent users of the instruments, particularly those who have an eye toward outperforming narrower indexes.

A fund like Vanguard Total Bond Market ETF (NYSE: BND) has little need for derivatives because it can literally pick almost anything from a huge universe of highly liquid bond issues. But smaller funds that focus on niche indexes–comprising highly rated emerging-market debt, for example–don’t have this plethora of options, and most of what they have to choose from is extremely illiquid. Without derivatives they simply can’t build large enough positions with sufficient liquidity to do anyone any good.

Derivatives–even credit default swaps–are also excellent risk-management tools for fixed-income fund managers because they allow the reduction of credit exposure and volatility.

Finally, true alternative strategy ETFs simply can’t exist without tapping into derivatives to employ complex hedging strategies and leverage. If they didn’t use those underlying strategies to reduce correlations to broader markets, they would serve little purpose. Without leverage they would be too expensive for the average investor. Translating these strategies to ETFs and the disclosure they require will bring a much higher degree of transparency to the industry over the long haul. Whether such vehicles are appropriate for you depend upon your long-term investment goals.

Derivatives are critical to many active management strategies. It’s important that regulators don’t overreach and toss the whole lot with the bathwater. Opening the field of actively managed ETFs will, over the long haul, benefit a broad range of investors through increased transparency and lower costs. The active funds launched so far have carried lower expense ratios than similar mutual funds–as much as 50 percent lower.