5 Steps to Improving the Investment Options in Your Employer’s 401(k) Plan
- Do the choices in your employer’s 401(k) plan leave you wanting…more? We spoke to Dawn Brown, senior financial adviser at New York-based wealth management firm Altfest, to get a few tips on how to convince your employer to make a change, and expand the company’s selection of investment options.
- 1) Express your concerns, and be solution oriented: If employees are not satisfied with investment options within their employer-sponsored retirement plan, feel free to express concern to your employer. However, cautions against merely complaining. “Go with an outline of what you would prefer,†says Brown. “Is there a larger number of choices a different provider or different investment options?†To get a sense of alternatives, Brown suggests canvassing friends who work for other employers about their 401(k) plan choices.
- 2) Take advantage of in-office financial briefings: It’s not uncommon for companies to hold an annual meeting with employees and the 401(k) provider. Employees should take this time to inquire about additional plan options, advises Brown. Since employees cannot initiate a meeting with the provider, this is an opportune time. From there, address your concerns with your human resource department, which is traditionally responsible for handling any issues with the plan provider, adds King.
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- 3) Seek buy-in: Consider banning together with colleagues to make a request or petition. “An employer will likely want the employees to be happy with the plan as it will increase participation rates,†says Brown. Low participation rates could spell trouble for employers as the retirement plan may become “top-heavy†— that’s when more than 60% of assets in a plan belong to “key employees†or employees earning more than $160,000 annually.
- 4) Know your rights: Investment plans are overseen by the Department of Labor who oversee ERISA, the law that governs defined contribution plans. While companies are not obligated to provide retirement plans, those that do offer them are obligated to maintain detailed rules of the plan. “By providing a 401(k) plan the employer has a fiduciary role,†says Brown. “This includes choosing the investment manager, choosing investment options and monitoring the performance,†The investment options your company offers should be diverse.
- 5) Think twice before exiting: Even if your options remain limited, you may want to reconsider completely withdrawing from a company-sponsored 401(k) plan. A 401(k) allows you to save funds tax deferred, up to $16,500 each year (with a catch-up for those over 50), explains Brown. Keep in mind that even though IRAs offer more flexibility in investment choices, they have much lower tax deferral amounts.