Monday, December 21, 2009

Time to Rebalance Your 401(k)

According to a study by The Wharton School, 79% of 401(k) participants make no trades within their account over a 2-year period.

The advantages of rebalancing have been well documented, but here is a good way to look at it. Suppose that several years ago you completed the allocation exercise in your enrollment book and decided that a 60% equity/ 40% bond allocation was appropriate….and you did nothing further. You may very well have had an 80/20 allocation when the market went sour…meaning that you took a bigger hit than you needed to.

By rebalancing on an annual basis, you “snap back” to your original 60/40 allocation, which is the one you wanted in the first place. And you take the emotion out of trying to guess how much higher the market will go, where the “top” is, etc.

Most 401(k) platforms have an automatic rebalancing feature, so there is really no excuse. You don’t need to mark your calendar, just check the box.

If you set it now for rebalancing every January 1, you’ll be ahead of the pack at retirement time.

Monday, December 14, 2009

Brightscope 2009 Top 30 401(k) Plan List

Brightscope, an organization which rates 401(k) plans on how effective they are in getting participants to retirement, has announced their top 30 plans for 2009. As you might suspect, these are LARGE plans who have the resources to provide (if they want to) the highest possible quality plan, and some have the resources to provide a “can’t miss” experience.

For instance, the number one plan on the list provides a 100% match on the first 9% of contributions.

But the information IS useful when it comes to designing your own program. There are common themes and “best practices” which can be adopted regardless of your resources…like shortening the eligibility time. If you have a 6 month or one year wait because of high employee turnover, you may want to leave it be. However, if it’s 6 months and nobody knows why (“its always been that”), then you may want to revisit.

For a look at the complete list of top 30 plans and the criteria used, here is the link: http://tinyurl.com/y8rv5oz

Saturday, December 05, 2009

You and LaRue

Its been over a year since the Supreme Court ruled that individual participants in 401(k) and other retirement plans subject to ERISA can sue plan fiduciaries to recover investment losses from their accounts. Although it caused quite a stir at the time in the vendor and legal communities, we are surprised that many plan sponsors are still either unaware or are dismissing it as unimportant.

It IS important, and it’s easily addressed. If you have an up to date Fiduciary File and you are working with an advisor who can act as a co-fiduciary, you’ll be able to thoroughly protect yourself, starting with these two critical areas:

1) reviewing the plans’ investment policies and procedures designed to ensure that the plans’ investments options are prudent

2) analyzing (and documenting the analysis of) fees charged by service providers.

You’ll gain fiduciary protection, identify (and probably improve) your expense structure, and optimize you fund lineup.