Rate Your 401(k)

Like most programs, on the surface this approach to comparing costs seems reasonable.

But if you dig deeper, the reality is this: Comparing 401(k) plans this way is a waste of time and money. It's folly, because it's just another flawed model that a few experts have decided to build a business around. Having said that...I do believe that these experts mean well, but setting up, managing, and monitoring a truly low cost plan requires more than good intentions.

For example, what is the most important about a 401(k) plan? It's your mix of investments, right?

Can you name one expert or one plan sponsor who has a long term (more than ten years) of picking a diversified mix of funds or perhaps packaged products such as asset-allocation, target-date, lifecycle, lifestyle, or balanced funds that beat a diversified, core, mix no load, low cost index funds in performance?

No! Therefore, you can save time and money by investing in the lowest cost index funds that you can find, right? And it's prudent. No one is going to take a plan sponsor to court for not trying to beat index funds in performance; especially, when no one has ever done it before--long term.

If you try to pick a mix of funds that will beat the market (index funds) and fail, it will cost employees more money than you can imagine.

Now, let's discuss the cost of services: How much money does timely and accurate recordkeeping and administration really cost? Do a search on the internet, and I bet that you can find at least one company that will provide these services for not more than $30.00, per eligible employee, per year (without any hidden or camouflaged costs).

My point is this: You don't need to waste your time and money doing this kind of comparison. Instead, complete three simple to understand and easy to implement steps--it will require not more than thirty-minutes:

Step 1: Pick a diversified mix of the lowest cost index funds you can find.

Step 2: Hire a truly low cost recordkeeper and administrator.

Step 3: Set up a low cost self-directed account for any employee who believes that he or she can pick a mix of funds that will beat index funds in performance. Sooner or later, most employees get it that they don't have the skills to beat the market (index funds)--long term.

Remember, keep it simple--don't let services and the myriad of bells and whistles wag the dog.

Frank R. Cirullo of CA 11:59AM February 23, 2009

How much does this company charge for this service?

Todd of GA 3:01PM January 30, 2009