The most important issue to keep in mind is that the 401(k) plan is established for the benefit of the plan’s participants. Selecting an investment solution must be done in a prudent manner with the same skill and diligence that would be expected from an expert. In fact, ERISA (Employee Retirement Income Security Income Act) holds plan sponsors and trustees to the prudent expert rule. While there may be differences of opinion among experts on investment strategies, a couple of key points are universal.
- Expenses reduce investment performance;
- Seldom are active managers able to achieve the benchmark returns they are measured against.
- Include a broad away of low cost index funds;
- Hire an advisor who will sign on as an ERISA Section 3(38) fiduciary who will develop investment models using the low cost index funds.