Proper plan design will greatly enhance your 401(k) plan. Plan sponsors would be wise to engage a professional fiduciary to manage their company plan. More specifically hire an ERISA 3(38) investment manager to select, monitor and replace the investments in their plan. This investment manager will agree, in writing , to be responsible and accountable for all the investments in the plan. The plan sponsor will realize reduced workload, substantially less fiduciary liability and a better plan. The plan participants will be provided a prudent low cost portfolio.
To optimize the value of a 401(k) plan, employers need to focus on three important tenets: run the plan in the best interest of employees; use investments that diversify risk and minimize the potential for a large loss; and above all, keep fees as low as reasonably possible.One percent or less in fees can make a big difference in how much is ultimately saved for retirement
To the dismay of many financial representatives – who make a living managing other people’s money – low-cost investments are routinely and historically outperforming higher-cost investments. Yet 401(k) plans, especially those designed for small- and mid-size firms, often carry added costs to employees. These often add up to two percent or more when packaged with fund expense ratios, loads, wrappers, record-keeping and management fees. In fact, the difference between one and two percent in fees can cost employers and their employees tens, if not hundreds, of thousands of dollars in savings over a career.
If business owners are willing to pay the administrative expenses, a plan cost of less than 1% is easily attainable. The 401(k) plan as a benefit for employment will continue to become more and more valuable.
Please comment or call to discuss how this affects you and your company retirement plan.