It’s too bad that the present `measured and limited approach’ has reduced many plans to too few options. Some of these are seemingly to the benefit of the plan sponsor.

For instance, the available Target Funds in our 13 option plan have the highest expense ratios. The other options are low ER index funds, international, and REIT options.

As the “educational Component” of our services allow, the representative only directs persons to contribute to the Target Funds. I.e. If you do know which fund to pick…pick one of these.

It’s a real shame that the “educational component” is of little value to the less sophisticated investor.

Where is the fiduciary responsibility in perpetrating the fleecing of the employee?

Ugh!

http://wyliemoney.blogspot.com/2007/07/so-long-tiaa-cref.html

Basically, TIAA/CREF offers more diversity, but the other set of funds are better options, fund by fund for the categories they do cover. So the suggestions above of auto enrolling people into a basic starting place and then letting people with more interest or understanding expand their selections would not be so easy here. Which plan should newbies be auto-enrolled in?

I have been in the ‘process’ of switching for a god while now- so it is not trivial…

The good news is that my account has been in a check between the two accounts during the recent selloff!

I think a plan with a diverse offering of funds including target funds for auto-enrollment makes a lot of sense- but a lot of companies still offer many different vendors- Vanguard or Janus or TIAA-CREF instead of one list of options from across the board which is clearly the better route.

Ideally, like Foobarista says- we should just be given discount brokerage accounts with a default choice of one of the target funds, but I imagine there are all sorts of regulations in place to protect Fund companies that have negotiated large deals with individual fund companies like CREF that would prevent this…

Most Americans work in small companies, and this is where 401Ks tend to be truly awful.

My wife’s self-employed 401K is just a generic brokerage account at Fidelity, just like an IRA. I suppose a company 401K would be more complicated with vesting match schedules and such, but I don’t see why it would be _that_ much more complex. If it was set up this way, there’d be no need to roll the fund over if you change your employer – just change direct deposit arrangements if you get a new job in the same way you do with a new paycheck.

The best plans I have seen offer some sort of asset allocation option(s) and individual asset class to accomodate both the novice and experienced investor.

My company’s plan has a vast array of funds and other options that are available to participants, but it has been the least complicated 401(k) I have ever participated in. The three big things they do to get people started:

1) automatic enrollment and 3% contribution after 3 months on the job
2) automatic selection of a target date fund based on your age
3) an investment counselor that automatically calls you on the week you are automatically enrolled

I have a feeling that making the 401(k)s simpler is more than just helping people start investing. There is likely a cost savings component thrown in there as well.

What’s sort of amazing is that, while most people believe that “the more choice, the better,” there is actually a lot of evidence that trimming down options for non-experts is a wise choice. (Evidenced in Barry Shwartz’s “The Paradox of Choice.”)

At the same time, no expert wants to be bogged down by beginners; it’s not fair for a knowledgeable employee to by bound to target funds when all he really wants is a small cap growth fund.

So, in the interest of fairness to all, the optimal solution is (IMO) to give beginners a simple method of allocating their 401(k)s (ex: User inputs current age and target retirement age, and the computer does the rest), and to let experts allocate as they see fit.

This solution doesn’t require limitations on the number of funds. New investors are protected from information overload: they can “let someone else choose for them.” Experienced investors can still make their specialized, precise allocations.

Basically: it pays to dumb-down the “front end” of the 401(k), as long as expert users do not lose power in the process.

DH and I were discussing this last night. A friend of his (mid to late 30s) is only just now going to start putting money into the 401(k) [!!!!]. He asked DH for suggestions on how to get started. For this kind of investor, who has no knowledge of, or really any interest in, investments, having “starter funds” like the target funds makes sense. It masks some of the up and down of the market, which often pushes new investors out, and it does some of the diversification for them – not to mention that it takes care of things like rebalancing. The fact that the plan has the constituent funds available allows the investor to “move up” to managing their money on their own.

So I agree, reducing the fund offerings is a downright stupid thing to do, it should really just come down to how you market the investments so that people aren’t overwhelmed and enticed to make poor decisions.