available with 401k Easy Online self-service 401k plans
With 401k Easy Online You Select Your 401k Plan Investments
With 401k Easy Online, you have complete discretion over the investments offered within your 401k plan. There's no bundled, pre-set investment mix.
View Lists of Potential Investments
Our complete database of potential 401k investments is rather enormous, as you might imagine given our statement above in topic 1 of "...if the IRS says it's OK to receive 401k contributions, you can likey offer it within your 401k Easy Online self-service 401k plan."
Self-directed brokerage accounts and mutual fund families -- particularly of no-load mutual funds -- are by far the most popular investment approaches among our 401k clients. (See topic 4, below, for some of the reasons why.)
To give you an idea of the freedom you have in selecting your plan's 401k investments even from just within these two popular categories - and you're by no means limited to these two categories - we've included in this website access to partial listings of the self-directed brokerage accounts as well as no-load mutual fund families you can choose from.
Help Is Available With Choosing Your 401k Investments
Let's preface this by saying that we're not in the business of selling anything beyond your customized 401k plan and corresponding online plan administration and participation systems. 401k Easy Online receives no commissions, kickbacks, etc., from any brokers, investment houses or other investment-related agencies.
We strongly recommend that you consult with a qualified professional in choosing your 401k plan investments. Any fees you incur are likely well spent. You might alternatively consider contacting an independent investment consulting service such as FinancialEngines, ClearFuture or mPower that specializes in personal financial advice but is also qualified to offer advice on choosing investments for your 401k plan. To view some information on these independent retirement planning services, please go to the following topic within our ERISA 404c page: Personalized Retirement Planning, 401k Investing Advice Services Available Online for 401k Participants.
We can certainly help you assess which APPROACH to 401k investing - self-directed brokerage accounts, no-load mutual funds, or load mutual funds - might best suit your company's needs, and our input is free. Please read Topic 4, below, about things to keep in mind when choosing your plan's 401k investments, then give us a call or send us an e-mail if you'd like additional input.
Note: If you're unfamiliar with 401k investing and/or 401k terminology, click here to open our 401k Glossary in a secondary window for reference.
Things to Consider in Selecting Your 401k Plan Investments
Here are just a few things to consider in selecting your 401k plan investments:
In selecting a mutual fund group for your 401k plan, it's important to include a spectrum of investments:
In this way your 401k plan will appeal to employees interested in amassing any of a variety of portfolio mixes. Employees can select portfolios that match their investment experience, temperament and objectives.
Mutual Funds Are Popular With 401k Investors
Mutual funds are available both via self-directed brokerage accounts and, obviously, as load or no load mutual fund families. The funds are popular with 401k investors for several reasons:
The flexibility afforded by mutual fund investments is very important to 401k investors, whose goals and retirement savings strategies can change dramatically during the often decades they participate in various 401k plans.
Special "401k Census" Website for Statistics-Based Insights into 401k Participation
On an ongoing basis we "blind sample" live investment and contribution data generated from many thousands of 401k investor accounts. This raw data is analyzed and quantified, and the results posted in this special website (www.401kcensus.com) in real time. Only blind sampling of data is performed; no personal identities or personal investment selections are accessed or included in the analysis and postings. 401k Census allows easy comparison of 401k investing profiles for various demographic groups, and visitors learn which classes of investments are the most popular with 401k participants.
It's Easy to Get Investment Performance Information
Performance information adds to your knowledge about an investment gained from reading the investment's prospectus. The most common ways to get specific investment performance information are:
Keep in mind...
Risk, Return, and 401k Investing
Investing is a risk-return dichotomy. Mutual fund money market investments are considered very safe, and offer a relatively low, predictable rate of return, although that return, like any, cannot be guaranteed. At the other end of the risk-return dichotomy are mutual funds that can be extremely violate, offering investors the possibility of dramatic gains (and losses). Mutual fund investments can lose value in a volatile market -- just as they can gain value.
Shares of mutual funds are not deposits of or guaranteed or endorsed by, any financial institution; they are not insured by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board, or any other agency, and they involve risk, including the possible loss of the principal amount invested.
In general, the more volatile a mutual fund investment (i.e., the less predictable its rate of return), the more POTENTIALLY lucrative its earnings. More volatile investments are considered to be more risky investments.
The investment return and principal value of an investment will fluctuate. An investor's shares, when redeemed, may be worth more or less than when purchased.
According to the Investment Company Institute, the mutual fund industry's trade association, approximately 42% of assets in the average stock mutual fund are bought or sold annually, meaning only a bit more than half the money in the fund actually stayed put year-to-year. Some retirement plan experts believe some of this fast trading is occurring in 401k plans.
According to most academic studies, frequent trading of mutual funds to squeeze out a few percentage points of gain is a bad idea. Studies confirm what has been suspected by professional money managers for years - namely, that frequent mutual fund trading usually hurts long-term returns.
As reported in The Wall Street Journal, one recent study* by University of California, Davis assistant professor Terrance Odean and professor Brad Barber found that investors who traded mutual funds most frequently had the worst returns for a five-and-a-half year period ending December 1996. During that period the average household earned an annualized return of approximately 15.3% from their mutual fund investments. Frequent mutual fund traders earned an average annualized return of only 10% for the same period.
*Source: The Wall Street Journal, September 22, 2000, Lucchetti, Aaron, "Frequent Trading Worries Fund Firms"
Nothing herein is an offer or solicitation to sell securities, products or services in any jurisdiction wherein their offer or sale is not qualified or exempt from regulation.
Watch for Hidden Fees
The US Labor Department is currently auditing 401k plans of all sizes because of a trend that may violate current pension laws. Many companies, especially smaller businesses, are shifting plan administrative expenses to plan participants, knowingly or unknowingly. This shift of plan expenses come in the form of "hidden fees" that are routinely deducted from each participants' retirement savings by some plan providers and mutual funds. Because of lax reporting requirements, no one really knows how much money changes hands behind the scenes, but it is estimated that excessive fees may be as much as $1.5 billion per year, and growing.
In the 401k arena, expense fee disclosure, whether to plan participants or plan sponsors, has been notoriously confusing and unclear. The impact of these confusing hidden fees on plan participants' retirement accounts can be very significant over time. As example, consider a hypothetical 401k investment such as a mutual fund, with deducted expense fees of 1.3 percent versus one with fees of just .3 percent. Applied to an initial 401k investment of $5,000, with regular annual investments of $5,000 returning 10 percent, and compounded over 15 years, the difference between the "low-fee" investment and the "high-fee" investment adds up to $15,398. That's a significant sum deducted from a participant's retirement savings.
Policymakers and plan sponsors seeking to structure well-managed 401ks for their aging workforces are beginning to acknowledge the negative impact hidden fees has on eroding pension accumulations for retirement. What might appear to be a small difference in deducted investment fees can result in substantial differences in eventual retirement benefits.
Common Investment Types
Money Market Fund:
Bond Funds (aka, Fixed Income Funds):
Stock Funds (aka, Equity Funds):
Common Investment Terms
Net Asset Value (NAV):
Common Investment Objectives
Corporate Bond--High Yield:
Growth and Income:
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.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
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 Pension Systems Corporation, 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 Pension Systems Corporation 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 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.
RIA Unitized Managed Accounts.
Unitized Managed Accounts for RIA-Managed Pooled Investments-Now the RIA Can Offer Custom Portfolios to a 401k Plan.
Today many Registered Investment Advisors (RIA) want to use their investing knowledge and expertise to offer custom portfolios to their clients’ 401k plans. A Unitized Managed Account (UMA) is the way this gets accomplished efficiently and affordably. Essentially the RIA used a UMA to create a private ‘mutual fund’ for the client’s plan; shares of this private ‘mutual fund’ trade like any other mutual fund shares within the 401k plan.
Configuration I: RIA Actively Managed Portfolio
A Registered Investment Advisor (RIA) works with the Employer-Plan Sponsor to determine the investment objective for each UMA portfolio. The RIA designs the UMA portfolios, which can range from asset allocations such as conservative to aggressive, or balanced to age-targeted. The RIA actively manages the underlying assets in the UMA, and places the mutual fund trades through a web-based trading platform. In addition to providing the platform for the RIA to manage the portfolio, the UMA provider settles the trades placed by the 401k plan participants to buy, sell or exchange the UMA assets for other investment options in the plan. Specifics:
Configuration 2: Set Target Asset Allocation Portfolio
An RIA works with the Employer-Plan Sponsor to determine the investment objective for each portfolio, and sets a specific target asset allocation model for each portfolio. The portfolio can be comprised of a variety of assets: mutual funds, publicly-traded stocks and exchange traded funds. This configuration includes portfolios consisting of a cash component for liquidity, and employer stock (including privately held employer stock, under certain conditions) to provide plan participants with T+O trade settlement in an employer stock investment option. The UMA portfolio may be re-balanced back to the targeted asset allocation model each time there is participant activity, or on a schedule as determined by the RIA/Employer. Specifics: