Battle plan objectives.

The “investment problem” is at the heart of the revolt. If you miss everything else, don’t miss this: most service providers in the 401k arena are driven to get “assets under management”. Every fund family and every non-fee-only advisor get paid from assets – your assets. There is nothing about this that works in your interest! Check out The Expense Problem for more.

The core competence of an actively-managed mutual fund is supposed to be the achievement of marginally superior returns over a particular benchmark or index. Well, there are decades of investment history to evaluate, so it’s very easy to see how they’ve done, and the answer is: Not well at all. In fact, index funds of comparable investments do better 80% of the time at about 1/5 the cost! Click here to see for yourself how your actively managed funds stack up.

Yet, we don’t see index funds playing much of a role in most plans. About 90% of plan assets are in actively managed funds. Why? Because index funds (like Vanguard) refuse to pay advisors the incentives, bonuses and other “revenue sharing” that actively managed funds do. Who does that benefit? The only folks that matter – you and your participants.

Are we saying index funds are the answer? No. They are still just investments. But they provide the most reliable returns at a very low cost, so they are a critical part of the solution. Why should a plan sponsor spend even 2x (let alone 5-10x) higher fees on actively-managed funds in the hope of so unlikely an outcome? You shouldn’t.

Further, one of the greatest hindrances to participation is the overwhelming array of investment options. Study after study shows that more choice leads to more confusion, more inaction, more fear and more bad decisions. More choice means fewer people in your plan and more ways for them to make bad decisions. A bold statement—completely supported by the data.

As a plan sponsor, you have all the power to change your 401k plan—the revolt is up to you!