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Choices Reduced: 401(k) Plans

Written by Gary North on December 9, 2011

The new trend is for 401(k) plans to offer fewer choices. It seems that investors are getting confused. They make mistakes. So, employers want to help.

Help themselves.

Simpler menus can help employers, too. “From the plan sponsor’s point of view, you have fewer funds that you have to monitor and evaluate on an ongoing basis,” said Brad Huss, an attorney and director of Trucker Huss, a San Francisco-based law firm that focuses on employee benefit plans. Huss also participated on MarketWatch’s Retirement Adviser panel.

“It’s a benefit to the plan sponsors [by] making their job a little easier to do the constant monitoring that the law requires them to do,” Huss said.

They are afraid of lawsuits. They can see that the S&P 500 market is lower today than in 2000. Then knock off 30% by inflation. The employers figure that employees will make mistakes, but they will make the same kinds of mistakes.

Any 401(k) plan that does not offer a bond fun and a stick fund for emerging Asian nations is not worth having. You need diversification — above all, diversification out of the U.S. dollar. But 4012(k) plans are usually all dollar-based: a few stock categories, a few bonds.

Now there will be fewer.

Second, consider fees. Investors need to figure out who’s paying and how they are paying, Davis said.

“Plans are expensive,” he said. “It can be paid for by the plan sponsor, by the participants or some combination therein, [but] at the end of the day, somebody is paying.”

To assess fees, Davis said, “One way to figure that out is to look at the index funds in your plan which will always be benchmarked against themselves, essentially,” he said. “The X company index fund will be presented to you in comparison to the index it is purporting to track. The difference between the performance of your fund and that stated index is apt to be the fee that you’re paying.”

“Doing that kind of legwork,” Davis said, “is what’s required of investors who want to do it for themselves.”

As of May 2012, companies must tell people what the fees are and what the returns are. That will make things easier.

All of it hinges on the soundness of the dollar. A pension fund owner is a creditor. Inflation is the threat.

The best retirement plan is a career to retire into. That was my plan. I recommend it. This website is an extension of that non-retirement plan.

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