Now, most employees and even many employers are unaware that there is something called a brokerage window that allows you to expand your existing investment options beyond the limited menu of mutual funds that your company 401k currently offers you. This window allows you to choose from thousands of investments that are not on your 401k menu, giving you access to best in class funds, stocks bonds and just about anything else that you can imagine. Let me give you and example: Let’s say you have a 401k with the ABC Company, and the plan custodian is Fidelity. And let’s say your plan offers 25 different mutual funds to choose from anywhere from growth to value to target retirement date funds.
The challenge for employees and employers is that many 401k’s do not offer the top performing funds available in each space, and even fewer of them update their menus as funds underperform or over perform. And we find this to be true especially with big companies. Their menu of choices, many times, has not been updated for years and they have a ton of 1 and 2 star funds and a few good ones here and there. So, from an employee’s perspective, you want access to the best funds in each category to ensure that you’re most important retirement asset performs well enough over the years to allow you to retire. From the employer’s perspective, you want to give your employees access to the best investments available, not only to make them happy and increase their chances of a stable retirement, but also to protect your company from breach of fiduciary responsibility lawsuits. Many law suits against employers have been filed by groups of employees arguing that the company did not give employees access to the best investments available, hurting their chances of a secure retirement. So, a brokerage window solves issues on both sides of this issue. It allows employees to go outside the fixed menu to access the best in class funds available, and it protects the employer from law suits. So it really is a win win.
Currently, of all of the 401k plans in America, about 50% already have brokerage windows installed yet only 3% of employees take advantage of them because most employees don’t even know they exist. So if you are an employee and want to know if your employer has this window already installed in your current plan, send me an email with the name of your company and I can quickly tell you. If the answer is yes, you can either use it on your own like a self directed IRA or my team and I can help you make the right choices when it comes to your risk tolerance and integrating it with the rest of your investments. If it turns out that you don’t have a window in your 401k we can help you get your employer to install one.
* * * * *
Information presented in this blog post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for all readers. A professional adviser should be consulted before implementing any of the strategies presented.