Changes in the 401(k) Landscape
What we're seeing, and what you need to know.
With the Department of Labor fiduciary law going into effect this year, we've had many clients asking us about these rules and what they should expect. We have seen a large number of changes occur within the 401(k) landscape, especially within large companies, which can be both good and bad.
Let's start with the good. What most employers are doing is changing their fund selections, and how the plans are actually constructed. Many companies are reevaluating, looking for the best-performing funds that the plan can allow, and/or adding new ones. Many are also moving to or adding lower cost funds to their options.
Who doesn't want better-performing and lower-cost funds, right? Of course, this is something that should have been offered all along, and many companies already were.
We also see many clients come to us who aren't exactly sure where their 401(k) funds are invested, or how to pick from what their employer offers. Now is a great time to bring this up and ask some questions of your HR department or plan administrator. Who knows, you might be able to help out not only yourself, but every employee at your company, by simply asking a question and getting them to look at some other options.
Now, with a good number of plans changing their fund selections and the types of funds you can invest in, what's the bad? The challenge is that a lot of the large plans are limiting their options and cutting out possible investment selections. What does this mean? Well, when an employee used to have 30-plus funds to choose from, he or she could construct a well-diversified portfolio with major index funds, or even funds targeted towards a specific sector such as oil and gas, or science and biotech. Now however, we are seeing plans limit those selections to funds only in the major indexes. Thus, you may have only one or two available funds for large-cap (large company) stocks, only one or two for small and mid-cap (small and mid-size companies), with perhaps an international option and some bond funds. While you'll still be able to participate in the broad market, this limits participants from investing in certain sectors they might have wanted within their 401(k).
As more changes take place over the coming months, our team is happy to help you navigate your options and answer any questions you might have. Call us today.