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Monday, February 23, 2015

The Surefire Way to Avoid Cost-Related 401k Lawsuits AND Have a Successful Plan

If you have actively managed funds in your 401k plan today, it's a safe bet your advisor is not providingAvoid_401k_Lawsuits any real guidance on plan cost.  But even without his help, you can easily Google the topic of actively-managed fund cost and performance vs. index (passively-managed) fund cost and performance.  What you'll find is clear proof that index funds, at a fraction of the cost, outperform active funds 80+% of the time.  Any layman can read and comprehend this research without any "expert" assistance.  Talk about transparency!

As we look at the common factors in nearly all 401k lawsuits, no plan sponsor would have lost his case, or been forced to settle, if his plan contained all, or mostly index funds!   Such a plan would have acted upon the overwhelming evidence mentioned above.  It would have minimized the cost to participants while giving them the greatest odds for making a solid return on their savings.  It would have established the plan sponsor as not only a responsible fiduciary but a champion of his participants as well.  Case dismissed?  Way better than that: the two most prevalent bases for every suit we've reviewed are eliminated entirely!

If you happen to be a plan sponsor who has loftier goals for your plan than avoiding penalties and staying out of court—like having every employee participating, earning the maximum match, savings as much as he can, investing in a way that fits his risk tolerance and gaining as much retirement security as possible, you can take an index fund strategy to a whole new level.  If your company had a 401k plan with pre-built portfolios made up entirely of low-cost index funds, your participants would have no reason to sue you at all.  If you can do that, AND help your participants truly maximize their retirement savings, why would you, as a fiduciary, not pursue that course?  The only reason not to is if you have no interest in a plan that is truly successful for your company and your participants.  In that case, the best course may be to resign your fiduciary role!

What happens when all the elements of a truly successful 401k plan are implemented?  Check out our case study and see for yourself!


Posted by at 11:11 AM