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Where Do you Go for Financial Advice?
June 2012
The rise of “automatic” asset-allocation solutions, such as target-date funds, has not eliminated the need for investment advice among 401(k) participants. In fact, the market turmoil of recent years has, if anything, heightened interest in solutions that can provide participants with a more customized approach—one that accounts for their risk tolerance. A note about risk tolerance: Not enough can be said about this issue and how it can affect your entire 401(k) plan. Plan participants who watched their 401(k)s plummet several years ago may be able to sleep better at night with a managed account customized to allay their fears of another market downturn. As plan sponsors, you will be performing an invaluable service, giving participants the peace of mind that, in turn, will enable them to make more informed asset-allocation decisions and encourage them to more fully engage with the plan. Consider also that the Department of Labor (DOL) qualified default investment alternative (QDIA) regulations specifically reference “an investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date”—and then goes on to note that an example of such a service could be a professionally managed account. Of course, the relative simplicity and greater personalization potential of these designs make them no less of a fiduciary responsibility to review or evaluate than other investment options on your menu. They can, however, make those challenging decisions more manageable for your participants. This month’s “Know How” speaks to the question that might well be going through your participants’ minds: “What the heck is a managed account?” Whether you already have one in place or are merely considering it for your plan, we hope this will give your participants some additional food for thought.
The rise of “automatic” asset-allocation solutions, such as target-date funds, has not eliminated the need for investment advice among 401(k) participants. In fact, the market turmoil of recent years has, if anything, heightened interest in solutions that can provide participants with a more customized approach—one that accounts for their risk tolerance.
A note about risk tolerance: Not enough can be said about this issue and how it can affect your entire 401(k) plan. Plan participants who watched their 401(k)s plummet several years ago may be able to sleep better at night with a managed account customized to allay their fears of another market downturn. As plan sponsors, you will be performing an invaluable service, giving participants the peace of mind that, in turn, will enable them to make more informed asset-allocation decisions and encourage them to more fully engage with the plan.
Consider also that the Department of Labor (DOL) qualified default investment alternative (QDIA) regulations specifically reference “an investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date”—and then goes on to note that an example of such a service could be a professionally managed account.
Of course, the relative simplicity and greater personalization potential of these designs make them no less of a fiduciary responsibility to review or evaluate than other investment options on your menu. They can, however, make those challenging decisions more manageable for your participants.
This month’s “Know How” speaks to the question that might well be going through your participants’ minds: “What the heck is a managed account?” Whether you already have one in place or are merely considering it for your plan, we hope this will give your participants some additional food for thought.
PLANSPONSOR staffeditors@plansponsor.com