3 ways to check if your 401(k) plan is wisely managed

Robert Powell, Special for USA TODAY4:30 p.m. EST November 17, 2015

Is your 401(k) plan doing right by you?

That’s a good question to ask now that Boeing has settled a nine-year-old class-action federal lawsuit filed on behalf of some 190,000 employees and retirees who accused the Seattle airplane maker of charging excessive investment fees to participants in the $44 billion Boeing Voluntary Investment Plan. (The settlement was not an admission of wrongdoing by Boeing, according to Chaz Bickers, communications director at Boeing, who points out that earlier this year, Bloomberg Business ranked Boeing’s VIP second among large companies’ 401(k) plans.)

And it’s an especially good question to ask given some of the incriminating statements made in the case, which trade publication BenefitsPro referred to as “notorious.

So what are some ways to tell if your plan is on the up and up?

How risky are the funds in your 401(k)? Plan sponsors are now required, per the Labor Department, to offer plan participants a core set of “plain-vanilla” funds, says Jason Roberts, the chief executive officer of Pension Resource Institute in Prairie Village, Kan. With a core set of funds, investors can create a well-diversified portfolio that also minimizes the risk of large losses.

But if your plan sponsor seemingly offers more sector/specialty funds than core funds you might want to ask your plan’s fiduciary and investment committee the reasons why. Some 7{fddc94492d6c52784c12d4f1e977a44f5436bc9e7de3fc42b9dfd85632c390f1} of plans surveyed by Aon Hewitt in 2013 offered sector/specialty funds; 25{fddc94492d6c52784c12d4f1e977a44f5436bc9e7de3fc42b9dfd85632c390f1} offered REITs; and 39{fddc94492d6c52784c12d4f1e977a44f5436bc9e7de3fc42b9dfd85632c390f1} offered company stock.

In the Boeing case, the plaintiffs argued that sector funds were too risky to be included in the 401(k); that having those funds on the menu led to a loss of retirement assets to employees and retirees, according to the Retirement Income Journal.

Yes, sector/specialty funds are likely fine if offered to sophisticated investors inside a 401(k) brokerage account, says Brooks Herman, the head of data and research at BrightScope, a San Diego-based research firm. But in the main, specialty/sector funds are probably not so prudent for the average and perhaps unsophisticated investor.

“If you feel like you don’t have a sufficiently diverse menu of plain-vanilla asset classes, then I would be concerned,” says Roberts. “One, I’m concerned about avoiding large losses in my account, and two, (not having a diverse menu) may be a signal that the plan sponsor is running the plan in a way that suits the business owner and not necessarily the rank and file.”

While you’re at it, consider benchmarking your plan’s investment options against other 401(k) plans.

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