Just How Good is Your Company's 104(k) Plan?

BY: Daniel M. Savage


Business owners know that a high-quality 401(k) plan is an essential fringe benefit, valuable to both company and employee alike. Some also believe that offering 15 to 25 mutual funds, daily valuation, online statements, reasonable cost, and perhaps a few slick online planning tools somehow make their plan “first-rate.”

We disagree. We believe that the above-listed attributes, while important, are insufficient to qualify a plan as first-rate.
So…what additional attributes are necessary to distinguish a first-rate plan from one that is merely average? Here are four that we believe to be particularly important.

1. A Fully-Managed Option

Many 401(k) participants choose to self-direct. That’s okay for some individuals; however, others lack the time, expertise, and/or interest to remain abreast of economic, market, and investment choice developments. In other words, self-direction may gradually degrade into a passive “auto-pilot” mode over time…definitely not an optimal situation.

A fully managed option can help ensure engagement between the participant and a Wealth Manager, along with monitoring of, and responses to, evolving conditions in the economic, market, and investment environments. This valuable option should be available at no additional cost.

2. Investment Choices Beyond Mutual Funds

Mutual funds are appropriate and adequate for many plan participants; however, some have a legitimate need for more. Truly first-rate plans permit the use of individual stocks, FDIC-insured CDs, individual bonds, and exchange-traded funds (ETFs), to name a few. These are traditional and valuable investment vehicles that enable participants to invest in a manner more consistent with their individual risk profiles and investment objectives. “Best” plans offer them at little or no additional cost.

3. Broad Availability of Indexing Options

Some employees want a passive investment approach that utilizes high-quality, low-cost indexing vehicles, such as mutual funds and ETFs. Unfortunately, typical 401(k) investment menus are dominated by actively managed traditional funds and target retirement date funds. Employees who prefer an index/passive approach should be able to construct a broadly diversified portfolio with indexing vehicles across all major asset classes and sub-classes. Again, this option should be available at no additional cost.

4. Face-To-Face Access to a Certified Financial Planner

The intrinsic value of a 401(k) plan extends far beyond the investment function, and is fully realized only when professional planning is added to the mix. Employees need more than just an investment vehicle to achieve their retirement goals, and online planning tools, while better than nothing, are insufficient. We believe that employees should have the opportunity to work directly (and in person) with a seasoned and highly qualified planning professional, such as a Certified Financial Planner.

So…just how good is your 401(k) plan? If it lacks any, or all, of the above-discussed attributes, talk to your current plan provider about remedying the situation. Your company and its employees deserve “first-rate.”

“Perfection is not attainable, but if we chase perfection we can catch excellence.” – Vince Lombardi

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