Retirement Meditation #11: Can a retirement plan have too many investment options?

Insights | Retirement Meditation #11: Can a retirement plan have too many investment options?

Author: Paul A. Carl, CHSA, CPFAVice President, Retirement Plan Consulting, Registered Representative

During my time as a Senior Investigator with the U.S. Department of Labor, I reviewed the 401(k) plan of an investment management firm that had 78 investment options. These were CORE investment options available to every participant. As I looked further into the matter, I was told that each of the firm’s investment representatives were permitted to add a fund to the plan’s core investment lineup by simply telling the HR & Benefits Manager to add the fund. 

There was no formal process. 

To this day, I will never forget the look on the CFO’s face when I asked, “How do you provide education to ALL (I added emphasis here by using my slow Kentucky draw “ALLLLLL”) of your employees on 78 investment options?”

This week’s Retirement Mediation begets two questions: 
1.    How many is too many investment options? 
2.    How many is too few investment options? 

To address this dilemma, plan sponsors should consider the following:
•    How educated / knowledgeable / engaged is my workforce? 
•    How educated / knowledgeable / engaged are my plan fiduciaries? 

Governing plan fiduciaries (I’m thinking plan committee members here) are responsible for the selection, monitoring, and removal/replacement of investment options. Governing plan fiduciaries are also responsible for ensuring that appropriate education is available for plan participants. While some tasks may be outsourced to service providers who may or may not be acting in a fiduciary or co-fiduciary capacity, plan sponsors and their fiduciary oversight committees should remain aware, involved, and assured that sufficient education of the investment options is readily available to plan participants.

Does your plan have the right number of investment options?

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