Author: Paul A. Carl, CHSA, CPFA™Vice 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?
The content of this blog is offered by HORAN Wealth Management, an SEC registered investment advisor. This information is not intended serve as legal advice or as a substitute for the advice of your own counsel and should not be relied upon as such, as the advice appropriate for you will be dependent upon the particular facts and circumstances of your situation. We provide links to other sites that we believe may be useful or informative. Any links to third-party sites, or information therein, are not intended as and should not be interpreted by you as constituting or implying our endorsement, sponsorship, or recommendation of the third-party information, products, or services found there. Neither the information nor any opinion expressed constitutes a solicitation to use our services or to purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Market conditions can vary widely over time and there is always the potential of losing money when investing in securities. HORAN and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.