It’s hard to fathom why plan sponsors continue to condone actively-managed funds in their plans. We’ve heard all the arguments, but they all fall flat in the face of mounds of research and evidence showing that index funds are infinitely more valuable. Yes, there’s now an undeniable trend of investors moving away from actively-managed funds and into index funds. But while we’re giving props to employers who are making this important switch, we’re also fanatics about ensuring the other components of a successful 401k plan are not ignored. If you take the three steps below, you’ll find yourself with a profoundly better 401k plan.
Step One: You guessed it….dump your actively-managed funds for low-cost index funds. Why? Lower cost and more persistent, higher returns for all your plan participants. The aforementioned mounds of evidence show that index funds beat their actively-managed counterparts at least 80% of the time.
Step Two: Organize your low-cost index funds into pre-built portfolios that reflect employees’ risk tolerance and years to retirement. Why? It eliminates most of the need for investment education, which we now know kills participation. And it eliminates “bad” investor decision-making that's found in virtually every plan.
Step Three: Educate your employees on how to save (not how to invest). Why? Because that's the trigger for great participation. Step two is the key to being able to utilize a savings education strategy.
If you take these steps, you will have a low cost 401k plan that is successful in every sense of the word. And, if you’ve been keeping up with all the participant-brought 401k lawsuits in the news lately, you might also note that you have completely eliminated every major complaint in every participant-brought suit!
Need some help getting this done? We’ve got a complete solution that’s available to you right now. If you’re ready to move to a fully successful plan NOW, click below to request a proposal. If you’re just starting to think about step one, click below to get a free cost chart that will highlight how far your plan costs have to fall.