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ERISA COMPLIANCE FOR YOUR 401k PLAN... 401(k) Investing Help education and investment advice for plan participants
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[topic 1]
ERISA Section 404c says 401k-sponsoring companies need to, among other things, provide their employees with adequate information about their plans' investments, 401k investing and related matters. 401(k) Easy includes general and plan-specific disclosure and investment education materials for your employees. In addition, your company receives informative materials for your employees about personal investment advice services available online and/or available from SEC-registered Investment Advisors. Plan participants can choose to utilize investment advice services to help them make educated 401k investment decisions.
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[topic 4] Listing of Personalized Retirement Planning, 401k Investing Advice Services Available Online to 401k Participants Below are the industry leaders in online retirement advice (listed in alphabetical order). Informing 401k participants and prospective participants about more than one service gives the participants the freedom to choose the service best-suited to individual needs.
Other services include Directadvice.com. The Wall Street Journal favors FinancialEngines services to Directadvice's for being simpler and easier to understand, and for more useful projections about investments actually meeting your retirement goals (Thursday, August 12, 1999) -- but your 401k plan participants find it valuable to know Directadvice.com is out there, too. GuidedChoice (www.guidedchoice.com) offers Internet-based financial analysis of 401(k) participant accounts in a format that is easy to use for even the most novice investor. GuidedChoice solutions offer participants unbiased, personalized, expert investment advice based upon mathematical formulas and algorithms. |
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[topic 6] 401(k) Easy Helps You Meet Your 401k Plan's 404c Requirements on Several Fronts With 401(k) Easy, meeting ERISA 404c requirements regarding investment diversity and availability of pertinent information is easy:
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[topic 7] 404c Protection for 401k Plans That Use Self-Directed Brokerage Accounts Because self-directed brokerage accounts do not fall under the definition of "designated investments" for 401k plans, companies have no specific sets of information, such as investment prospectuses and performance information, that they must provide to plan participants regarding self-directed brokerage account investments. What does need to be provided is:
With the exception of disclosure regarding investment through self-directed brokerage accounts, the above must also be supplied for plans using "designated" investments, such as mutual funds.
For more information about designated and nondesignated investments and their 404c compliance ramifications, please read Panel Publishers 401(k) Advisor article, "Personal Brokerage Accounts: Is 404c Protection Available?" September, 1999. |
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[topic 9]
Intro... One reason to strongly consider 401k Easy Online for your company 401k plan is the tremendous array of investments your plan will be privy to. It's no secret that appealing investments inspire initial as well as ongoing 401k participation. They're arguably THE most important determinant to your 401k plan's health and success. (You'll already have nailed down convenience, accessibility, etc., with 401k Easy Online's user-friendly, 24-hour-a-day-accessible architecture.) Of course, investments one employee finds appealing may not interest another; they may not even interest the first employee five, ten years from now. So how do you select investments for your company 401k plan? 401k Easy Online gives you access to more than 600 mutual fund families representing more than 10,000 different mutual fund portfolios, plus access to self-directed brokerage accounts. Do you offer all the options? Not likely, unless your employees have a tremendous amount of time on their hands to read through 10,000-plus investment prospectuses. So how then do you sufficiently narrow the field without over-restricting it? This page explains three fundamental principles to effectively choosing 401k plan investments -- not only in terms of the investments' appeal to your employees, but also in helping you meet relevant government regulations regarding diversity, etc., in the investments chosen for each 401k plan. The content has been written in terms of mutual funds but can easily be extrapolated to choosing self-directed brokerage accounts. And remember…
Principle 1: Diversification The most common -- and detrimental -- mistake made in choosing plan (and personal) investments is to base a decision on an investment's performance history, particularly its recent performance history. Investment performance is cyclical: a mutual fund that's blazing hot today may be as cold as ice tomorrow, and vice versa. Past performance is no guarantee of future results. It should be considered as only one indicator of an investment's suitability. A better approach is to let your objective be your primary guiding light. For choosing your company's 401k plan investments, your objective is to select a spectrum of investments that will prove appealing and satisfying to your employees' diverse investment needs. The spectrum, not fund-by-fund performance, is your quarry. To achieve a suitable spectrum of investment options, select one, two or three mutual fund families, then choose a cross-section of funds from within each family. Mutual fund companies compete for investment dollars by trying to out-perform each other. Your employees can benefit from this competition with access to even a single reputable fund family; access to a second or third family grants added choice and flexibility. By listing a cross-section of investments within each family group, your employees will be able to find investments that suit their investing temperaments and needs, now and down the road. At minimum, your plan needs to offer investments geared toward the following:
Principle 2: Choose Investments That Fit Your Goals and Temperament -- and Those of Your Plan's Potential Participants Stock and bond net asset values (share prices) fluctuate. Some fluctuate more frequently and more diversely than others. While this doesn't bother certain investors -- ones, perhaps, with plenty of time before retirement, ones used to the ups and downs of investing, ones with other sources of emergency money -- many investors prefer to avoid extreme volatility. As mentioned above, "growth" funds tend to be more volatile than "income and growth" funds, which tend to be more volatile than "income" funds, which tend to be more volatile than money market funds. Investment returns should also factor into your decision. Compare investment returns to those of direct competitors' -- not to those from a different class of funds. You can compare returns of competing investments using any of several online services, including Standard & Poor (www.ratings.standardpoor.com), Morningstar (www.morningstar.com), Personal Fund's Online Fee Calculator (www.personalfund.com ), Mutual Fund Investor's Center (www.mfea.com ), SmartMoney Mutual Funds Research (www.smartmoney.com). Don't be fooled by "cumulative total returns" showing how
much an investment has grown or shrunk over several years. A large
cumulative return when translated into average annual returns may not be
large at all. For instance, a stock fund with a cumulative return of 101%
over 12 years equates to an average annual return of only 6% compounded;
such may or may not be competitive with competitors' funds or with the
benchmark index. Mutual funds, even no-load funds, are not free, nor, in general, are fees they charge closely regulated. The fees can vary widely from fund to fund (though competition, of course, does keep things in check to a degree). Each fund family sets its fees. The fees are spelled out within the investment prospectuses. Mutual fund fees to look for include…
Most entities that provide and support 401k plan investments -- mutual fund managers, fund distributors, asset custodians, asset trustees, investment brokers and advisors, plan administrators and record-keepers -- earn at least a portion of their compensation from asset-based fees deducted from plan assets. We at 401(k) Pro, however, are the exception to the norm: We do not earn any compensation -- directly or indirectly -- from our clients' 401k plan assets. In cases where rebates are offered on investments, we have the rebates returned to our clients or directly applied to reducing our clients' costs. Our published prices, available online for all to see, are the only net compensation we collect. We do not accept any rebates or revenue sharing of fees deducted from our clients' plan assets unless those fees can be returned to the clients' plans or used by 401(k) Pro to offset plan expenses. Asset-based fees are an unavoidable fact of life if your company uses mutual funds or self-directed brokerage accounts for its 401k. The cost of these asset-based fees should be factored in when determining the true, overall cost of your 401k -- and the cost savings of 401k Easy Online returning such fees to clients when possible should be factored into our products' affordability. For more information on asset-based fees we recommend reading "Revenue Sharing in the 401(k) Marketplace--Whose Money Is It?" by The McHenry Consulting Group and Study of 401(k) Plan Fees and Expenses by the US Department of Pension Welfare and Benefits. Principle 3: Use a Long-Term Horizon When Selecting Your Investments Provider 401k investments are long-term investment vehicles. They're not designed (nor intended) for short-term results. Look towards fund companies that will stand up to the test of time. The public image of the fund families you select for your company 401k plan will affect its popularity among your employees. As with other consumer products, mutual funds (and the companies that produce them) come in various shapes and sizes, with reputations and brand-name recognition to match. Remember to consider…
We're Here To Help The above are guidelines to help you select investments for your 401k plan that will encourage participation and effective retirement saving while ensuring that your company meets the federal mandates regarding 401k plan investment diversity. We're here to help if you're still unsure of how to proceed with choosing investments for your 401k plan. Send an e-mail to info@401k-easy.com, or call 1-800-660-0050.
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Providing 401k Plan Participants With Information About Retirement Investing Guidance Services Helps Your Company Meet Its ERISA 404c Compliance Responsibilities