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  • Wife 401k

    I have a quick question about my wife's 401k. We are currently making the maximum contribution to her 401k but her employer chooses the investments.  Is this common?

  • #2




    I have a quick question about my wife’s 401k. We are currently making the maximum contribution to her 401k but her employer chooses the investments.  Is this common?
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    Do you mean there is a limited selection from which you can choose, or they decide the entire allocation within?

    Most commonly there are only a handful of options, usually a few of each asset class and major archetypes (US equity, int'l equity, bonds, etc) and maybe some target date funds.

    Do you know through which custodian the 401(k) is?

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    • #3
      While it is no longer common, it is not unheard of for the participants to have no say in the investment selections. Participant directed investments are not a requirement of qualified plans.

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      • #4




        While it is no longer common, it is not unheard of for the participants to have no say in the investment selections. Participant directed investments are not a requirement of qualified plans.
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        Wouldnt that make them more at risk from an ERISA standpoint? I dont think I'd want that liability.

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        • #5
          Maybe Kon Litovsky can comment on this, but many fiduciaries consider plan directed investments to have less liability. After all, pensions work this way.

          Believe it or not, people sued their 401k in both the 2000 dot com collapse and the 2008 financial collapse.

          In 2000, there were people who were 100% invested in the NASDAQ and moved to cash at the bottom. Of course this is the 401k plans fault and not that they were idiots.

          In 2008, there were people who made REIT, EM and or financial sector bets. Here again, they blamed their 401k plans for their stupidity.

          Some plans opt for plan/fiduciary directed Investments. In cases where the plans are participant directed, fiduciaries prefer minimal fund selections like the TSP. Studies have shown that 401k participants have lower returns when there are > 10-12 funds plus target date/lifecycle funds.

          So simpler is very often better.

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          • #6




            I have a quick question about my wife’s 401k. We are currently making the maximum contribution to her 401k but her employer chooses the investments.  Is this common?
            Click to expand...


            Based on your description it seems to me that you have a pooled 401k plan or a participant-directed plan that has an adviser who directs individual accounts.  I don't see too many of the latter, but the former is common, even for really large practices.

            While I love pooled 401k plans for small practices, this is a really bad idea if there are many highly compensated participants/doctors in the plan. A pooled plan does NOT have to provide 408b2 disclosures, so this is a nasty loophole that might be abused by some advisory firms to charge huge fees from plan assets.  With the new fiduciary rule they have to be ERISA 3(38) in order to manage the money on a discretionary basis, and some are, but most are still not.  This is an enormous fiduciary liability for the plan sponsor, because they would be fully liable for their adviser's investment selection and portfolio management. Even an ERISA 3(38) fiduciary has to follow a fiduciary process when managing assets on a discretionary basis for any plan.

            Are plan investments transparent and low cost?  What is the overall fee?  Is there an Investment Policy Statement for the plan that details the investment strategy that is approved by the plan sponsor? If there is no IPS and portfolio description available and no expense ratios/cost available to participants, this is the first red flag that this might not be an ideal solution for your wife's plan. In our tiny plans we always list all investments and all expense ratios for each fund, and clearly explain the investment strategy to the staff.  For a bigger plan this must be standard operating procedure, and if it is not, I would raise this with the plan trustees.
            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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