For an employerto attract and retain talented employees they will need to provide a more secure and worry free solution for retirement planning. Plan participants realize that they cannot do it themselves and will look to their employer for help. You can provide that help.

2. Actively managed mutual funds rarely beat the market and aren’t worth paying a premium onMost 401(k) plans are built with actively managed mutual funds with a goal to beat a benchmark market index (e.g. the S&P 500).   Beating the market sounds like a worthy goal, but unfortunately, few fund managers can demonstrate results of doing this consistently over any stretch of time (if ever).  Picking stocks is like predicting the weather – very hard to do with any real consistency.  Managers not only have to be very good, but they also have to find enough winners to overcome the costs of losers, research, personnel, and added trading costs common with actively managed funds to outperform an index.

One independent study recently evaluated the performance of 2,100 actively managed funds over a 31 year period and found that only 0.6% of fund managers had stock picking success.  How different is that from zero?

Demand index funds in your 401(k) plan.  You’ll likely be much better off.

3. They share none of the risk or fiduciary duty on your plan (but you sure do)

When you provide 401(k) benefits, you have the duty to run the plan in the best interest of your employees.  Part of those duties includes monitoring investment options made available and making changes as appropriate, providing guidance materials to members of the plan etc.  And while your rep and provider may have given you a list of funds to select from – and even suggested a few – it’s your responsibility.   The very investment expertise the rep is supposed to be providing is really fully on the employer.  Bad funds? Your problem.  Employee complaints? Your problem.  Employee lawsuit? You get the picture.

The 401(k) plan is the sole source of retirement for most Americans. We must begin to give it a higher degree of importance in our benefit packages. Many employees, both current and prospective are looking for security in their retirement plans.

Please comment or call to discuss how this affects you and your organization.