#2. How have 401(k) savings plans become inefficient?
Traditional 401(k) Savings Plan Expenses Drive Inefficiency
401(k) Savings Plan Inefficiencies Are Driven By Several Factors:
- There are expenses included in the mutual fund investment options that 401(k) plan participants have to choose between.
- Each mutual fund incurs an expense ratio as payment for the work that’s done in terms of choosing what to invest in inside of those funds and maintaining those funds.
- Actively managed funds also charge larger expense fees than index mutual funds and many plan providers wrap additional fees around funds being offered for either, or both actively managed funds and index mutual funds.
These factors make the expense ratios on some of the mutual funds available in many 401(k) plans much larger than they need to be.
Odds Are Against Successful Retirement Planning for Most Americans
Despite proper due diligence and government oversight, most Americans are still not investing appropriately for retirement with a traditional 401(k) plan. Over the last decade the majority of actively managed mutual funds failed to surpass their benchmarks. Today, most 401(k) plans’ participating employees lack the expertise needed to make educated retirement planning investment decisions to fund their retirement savings account.
To learn more about how your 401(k) plan can become an efficient retirement vehicle for your employees, contact one of our retirement plan consultants today.
Up Next in our Series: #3. How have 401(k) plans become dangerous?
This information is intended for educational purposes only and should not be construed as an offer to buy or sell any product or strategy. You should contact your Financial Advisor with questions regarding your individual circumstance.