401(k) Gambling and the Self Directed Brokerage Option

Gambling odds reflect the average bettor's 'de...
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This is an option for those participants that believe they can beat the market. Usually by professionals who believe they are smarter than the average investor and therefore entitled to making their own investment decisions. Their time would be much more productively spent on their careers or with family.

Retirement savings should be about long term growth, outpacing inflation, and having enough savings to last through retirement. A retirement account is not a get quick rich scheme or gambling, because as many time that you win a big bet on a speculative stock, there are more times that you strike out like Reggie Jackson. Sometimes Reggie swung so hard and failed to contact that he fell on his rear end. A plan participant should never let that happen to them in their retirement savings.

Many 401(k) plans, especially professional organizations offer self directed brokerage accounts to plan participants. While some plan sponsors offer it to offer more choices to their plan participants (it’s usually the owner-employees who demand it), it is fraught with many hazards. The hazards are to the participants who use them, the cost of running the plan, as well as possible qualification and liability issues for the plan sponsor. The self directed brokerage option is a gamble that 401(k) plan sponsors should considering taking a pass on before rolling the dice.

If you have a self directed brokerage account option in you 401(k) plan you must offer it to all participants. It seem intuitive that allowing participants to choose their own investments reduces your fiduciary risks. This is not true. You continue to be responsible for prudent investing within the plan.

Please comment or call to discuss how this affects your employees and yourself.

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