401(k) plans have received a lot of press and attention of late. Recent implementation of Department of Labor regulations has resulted in some changes for 401(k) plan participants and plan sponsors.
Here are some recent articles that offer some critiques and issues facing 401(k) plans today.
"Bad behavior persists in 401(k) accounts"
In an April 2013 article, author Linda Stern highlights how many 401(k) participants have missed much of the market rebound since 2009 due to their own ‘emotionally driven’ behavior. The article mentions one positive trend in 401(k) plans since 2009 – the elimination of large stakes in company stock within 401(k) plans. A 401(k) plan can be your largest financial asset and it is crucial that you are receiving the information and advice you need when it comes to your 401(k).
Full article: http://reut.rs/18tNaOG
“Ban ‘active’ fund from 401(k)s, IRAs”
In March 2013, Alicia Munnel of the Center for Retirement Research at Boston College wrote a short article highlighting her position for why ‘Investments in tax-favored accounts should be limited to index funds’. She found that there is not a correlation between the high fees of actively managed funds and higher investment returns. Her position goes so far as to suggest ‘banning actively managed funds from tax favored plans’.
Full article: http://on.mktw.net/12Vcojg
“Cover: Delegation of Duty”
This article delves into the selection and monitoring of a 3(21) or 3(38) fiduciary assigned to a company 401(k) plan. Plan sponsors need to do their homework when outsourcing this important role and have a prudent process in place to select and monitor the plan fiduciary. Recent laws have changed where the responsibility falls and it’s not as easy as signing away the role.
Full article: http://bit.ly/11j9nPe
“Employers Also Chase Mutual Fund Performance”
Research findings out of the Center for Retirement Research at Boston College were highlighted in a recent NY Times article. The article implores that employers/plan administrators are guilty of dropping ‘under-performing’ fund choices from 401(k) plans for ‘better-performing’ funds - essentially falling victim to the same trap that individual investors do of making investment selections based on past performance alone. You will see through the research that this does not lead to an improvement of investment performance.
Full article: http://nyti.ms/12ggcMZ
“Workers face challenge in analyzing 401(k) fees”
With federal laws now requiring the disclosure of management fees to 401(k) plan participants, the author or this articles questions if the information presented can actually be understood and interrupted by plan participants.
Full article: http://bit.ly/10Gu2We
“Self-directed accounts in peril”
Recent Department of Labor statements have raised concerns with self-directed brokerage account offerings within 401(k) plans – particularly for the plan’s sponsors who must maintain their fiduciary duty. The result is several plan sponsors doing away with self-directed brokerage accounts within 401(k) plans.
Full article: http://bit.ly/10qtEAL
With all of the recent changes that have taken place, it is certain that 401(k) plans will continue to be changed and modified moving forward. 401(k) plans comprise an important part of your overall financial picture and should be closely monitored. If you have questions pertaining to your 401(k) plan, contact your 401(k) plan administrator, your human resource department, or a financial advisor.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail email@example.com.
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