This article will put some recent historical perspective on changes in 401k plan offerings by employers.
After twenty five years of experience with the 401k plan, employers are still adapting their offerings in what has become the single most important source of retirement assets for most covered employees. Employers generally fall into two camps: those that take a paternalistic view of their employees and those that simply believe that the 401k plan is a necessary recruitment and retention tool.
The plan provider, the company that provides the plan platform to your employer, may periodically survey employer clients to refine and adjust their service. One such provider, Hewitt Associates, in their 2009 Trends and Experience in 401k Plans survey found that of the 300 plans surveyed, covering 3.8 million participants that the average number of investment options increased from 17 to 20 funds over the last two years; however, this was due to the addition of Target Date Funds. The median number of mutual fund is still only 12 up from 11 in 2007.
While sixty-nine percent of the plans default their employees to Target Date Funds, twenty-six percent of the plans (up from eighteen percent) provide their employees access to a self directed brokerage account option. This is a “good news ~ bad news” kind of scenario in this writer’s opinion. For the non participant, the employee who is unwilling or unable to decide what to do with this retirement benefit, she is being forced into a questionable asset class. At the other end of the spectrum, the active participant, willing and able to take personal responsibility for her retirement benefits, she is being offered a window to access lower cost and better performing Exchange Traded Funds.
On the whole, while the 401k retirement savings account structure is not perfect, while the 401k options are not perfect, it is better than participants sitting in money market assets throughout their working careers. In addition it is also better than the original structure with plan providers limiting fund offerings to proprietary mutual funds despite the fact they were often the highest cost and lowest quartile performers in their category. Progress not perfection.