Ask Erick: 401k Investment Option Reduction
Q: Erick, our plan committee, with the help of our plan advisor, is considering reducing the number of investment options available to our employees. We currently have 27 investment options — how does that compare with industry averages?
A: You are not alone in having a lot of choices available. The 65th Annual Plan Sponsor Council of America’s Survey of Profit-Sharing and 401(k) Plans found that more than a quarter of plan sponsors offer more than 26 options, whereas another 18% offered 21-25, and 27% offered 16-20. A long-held principle of behavioral finance is that more choice doesn’t always lead to better decisions. As such, it’s probably a good idea that you are reviewing your investment menu and considering reducing the options. Are there funds on the current menu that either aren’t being used or aren’t being used widely? You may find that they are contributing very little other than information overload for your employees. Not to mention adding more pages to cover in your investment reviews.
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Disclosures, Sources, and Footnotes
For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.