Is Your 401k Plan Designed to Succeed?

October 30, 2017 By: Todd Schanel, CFA, CPA, CFP®

A 401k plan can be a wonderful benefit to offer employees as well as a great way for a business owner to reduce taxes. Unfortunately, many plans are too complicated, too costly, and offer little to no advice, education or help to plan participants. As a result, these plans have been a failure in helping people save for retirement.

But it doesn’t have to be that way. Here are five ways employers can offer a better 401k plan:

Limit the Number of Investment Choices Available within the Plan. When it comes to 401ks, offering a long list of investment choices is not necessarily a good thing. Too many choices can create confusion and “analysis paralysis”, where participants are so unsure about what choices to make that they don’t make any. A better plan offers a limited number of sensible, low-cost choices.
Offer Professionally Managed Diversified Portfolios. Many plans provide a list of investment choices and then leave it up to the participant to choose specific investments and create a sensible portfolio. A better plan provides participants with a series of professionally managed portfolios, or all in one asset allocation funds, each with varying degrees of risk.
Ensure that Fees are Low and Transparent. Too often plans can be laden with fees without participants even knowing it. A better plan includes flat, per capita administrative costs that are paid by the employer, and investment expenses that are about 1% or less. These fees are clearly disclosed and easy for the participant to understand.
Offer Employer Contributions. Every 401K plan should include some type of employer contribution, and a 401K matching program is a particularly effective way to encourage participation.
Provide Participant Education. Instead of leaving employees to fend for themselves to determine if and how they should participate in the 401k plan, a better plan provides employees with access to an advisor that can provide education and advice.

These are just a few tips on how to optimize a 401K plan for the benefit of both the employer and employees. If you have any questions on optimal 401K plan design, please free to call our offices at 561-491-0231.

Core Wealth Management is a fee-only wealth management firm located in Jupiter, FL. Our CFP® professionals provide investment management, financial planning and advisory services, while always strictly abiding by the highest fiduciary standards. For more information, contact us today at 561-491-0231.

Todd Schanel, CFP®, CPA, CFA is the Principal and Director of Investment Advisory Services at Core Wealth Management.

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