6 Features of a Good 401(k) Plan

US News

A 401(k) is a great way to save for your retirement because it automatically takes money out of your paycheck before you can spend it on something else. But not all plans are created equally. To help you achieve your retirement savings goals, ensure that your 401(k) plan offers the following key features:

Easy engagement. Your plan should make access to plan information easy to find. A website that allows you to make contribution updates and transaction changes anytime is ideal. Having the ability to view statements online and see your account's historical activity will make keeping tabs on your retirement plan easier as well.

Robust fund line-up. Diversification is incredibly important to your overall financial success. To achieve diversification you need to have funds from all major asset classes available, including a stable value or money market fund, an intermediate-term bond fund, a diversified international large-cap fund, a large-cap value fund, a large-cap growth fund and a small- or mid-cap growth fund.

From these choices, most individuals can create a mix of investments that will meet their retirement needs. For investors that require more depth to their line-up, a brokerage option will allow more flexibility and choice.

Access to advice. There should be options for investors that want very little interaction with active planning. Choices like target-date funds, unbiased investment advice, or a managed account option will help those who don't have the time or won't make the time to research the core fund line-up and create their own fund assortment.

Many retirement plan investors have good intentions when it comes to saving for the future, but they take one look at the long list of funds and procrastinate on making a decision. However, even if your plan doesn't offer access to advice, you can look for outside help.

Value. A 2007 AARP study revealed that 65 percent of respondents believed they did not have any 401(k) fees. That number jumped to 71 percent when AARP conducted the survey again this year.

Your 401(k) is not free. All retirement accounts (including Individual Retirement Accounts) have fees, but those fees should be reasonable. According to the Employee Benefits Security Administration, fees for 401(k) plans fall into three major categories: plan administration fees, investment fees, and individual service fees. Your employer should negotiate the best available fees on your behalf in all of the major categories.

Open disclosure. You should be aware of all of the fees in your plan, and you should know how those fees impact your bottom line. Next year, the Fee Disclosure Act, which requires quarterly fee disclosure reports to plan participants, will go into effect. This will make accessing fee information easier, but don't let fees discourage you from participating in a 401(k) plan. All retirement accounts have fees, but don't wait until next year to learn about the fees in your plan. Review your account statements, the summary plan description and your plan's annual report for more information.

Planning resources. Your plan should offer tools and resources to make the planning process easier. This could include calculators to help you determine how much to save, asset allocation models to help you choose appropriate funds for your situation, and long-term planning tools that help you make the most of your retirement savings. Your employer should clearly and concisely communicate your options with instructions on what you need to do to stay on top of the opportunities in your plan.

Employers offer retirement plans, such as 401(k)s, to help their employees reach retirement success. With a little extra effort, participants and the employers that offer the plan can work together to reach retirement goals.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the every-day investor. His advice has been featured on various news outlets including FOX Business, USA Today and The Wall Street Journal. Keep tabs on Scott on Twitter and Facebook.

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