The Ideal 401(k) Platform with Investment Options

People frequently ask us what constitutes the ideal 401(k) arrangement when offering investment options. We feel it would be an unbundled arrangement, with multiple parties – e.g. a Third Party Administrator (TPA), a financial advisor, and an internet-based platform, including most, if not all, of the following design features.

Open Architecture

It should offer funds from a number of mutual fund families, instead of limiting the menu to a single family or requiring that a majority of the funds offered to participants must come from one family.

Easy Access

Participants should have access to their account balances through both the Internet and a toll-free telephone number.

Easy to Research Funds

Offering institutional share classes of publicly-traded funds allows independent verification of the ranking of the funds, as well as the comfort of well-known fund names and competitive expense ratios.

Diversification

The fund categories should cover all of the various fund styles --- allowing participants to have the best diversification.

No Exit Fees

There should be no back-end loads. This allows the employer to easily change vendors later if it is unsatisfied with fund performance or service.

Loan Tracking

If the plan offers participant loans, these should be reflected on the participant statements.

Vesting Information

The quarterly statements should reflect any vesting schedules.

Responsive Financial Advisor

The investment advisor should be able to help with 404(c) compliance. And his compensation should be “level,” meaning he has no bias or incentive to push one investment over another.

Interactive Website

The participant materials and website should help the participant answer two major questions:

1. How much should I be saving?
2. What is an appropriate asset allocation for me?

The platform should also offer online investment advice for more in-depth guidance for the participant who is willing to input information about other personal assets.

Investment Models

The plan should offer a simplified approach to asset allocation -- preferably through something like lifecycle funds or target date funds.

Outside Trustee

The investment advisor should offer the employer the option of appointing an institutional trustee, as well as an independent fiduciary, to choose the funds offered to participants - instead of requiring that the employer be the sole fiduciary making these decisions.

Fund Performance

Not only should the menu of funds offered by the vendor include above average five-year track records (net of fees), but the overall track record of the entire menu of funds should be above average.