Are Self-Directed 401k Plans Really Helpful?
Actually, the self-directed plans are being considered highly effective in wooing capable employees (high-salaried executives find these plans essentially lucrative). Again, offering 401k plans with self-directed accounts means a great relief for the employers as it no longer obliges them to retain a huge number of mutual funds as part of the retirement plan. This lowering of the number of mutual funds not only curtails a huge share of their expenses, it even does away with the related administrative hassles.
Nonetheless, not everything is that sweet on the employer’s end. There is hardly any hint of doubt that the self-directed 401k plans prove essentially beneficial as retirement investment plans. However, they pose stiff challenge for the plan administrators, i.e. the employers. Apart from the advantages to reap, an employer has many responsibilities to shoulder once he/she agrees to offer. No wonder that still many employers take up a rather guarded stance when it comes to offering such retirement plans.
Surveys conducted have shown that many employers refrain from offering SDBAs as part of their 401k plans because they fear that employees may make poor, indiscreet investment decisions. In fact, there is ample proof that employees falter with their choice even with limited fund options. That being the case, offering self-directed 401k plans will be like inviting trouble for themselves, as usually an employer is held responsible for not properly guiding an employee in investment matters. Many a time, employers are sued and face lawsuits for not informing the employees about the associated risks-factors.
Considering the fact that employers are bound to bear certain fiduciary responsibilities (that extend not just to the plan-holder but even to the plan-holder’s beneficiaries), what employers can do to avoid such situations is educate employees in investment matters. Once adequate information and instructions have been offered to employees, employers can safely think of introducing self-directed 401k plans.
Nick Blackman
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