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401Kafe
Investment -
Frequently Asked Questions |
What
kinds of investment options are usually offered in 401(k) plans?
Although employers are not
required to offer any specific investment options, most choose to comply with voluntary
guidelines established by the Department of Labor. These guidelines stipulate that plans
must offer at least three distinct investment options with substantially different
risk/return objectives.
The range of investment options commonly offered in 401(k) plans includes:
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Is
there a minimum number of investment options my company is required to offer?
Legally there is no minimum, but most employers choose to comply with voluntary guidelines
established by the Department of Labor. These guidelines stipulate that plans must offer
at least three distinct investment options with substantially different risk/return
objectives.
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How
should I invest my money?
If you've ever asked your employer this question, you probably found that no one is really
willing to answer it. At best, you may have walked away with a brochure or an educational
tool.
The reason is this: As plan fiduciary, your employer has to select investment options for
the plan and continue to make sure that these options are good, prudent investments. By
shifting the responsibility for deciding how the money should be invested to you, the plan
participant, plan sponsors avoid the liability of being held responsible for individual
investments, too. Plan sponsors don't want to give investment advice because if they do,
they could be held liable for the outcome of the investment allocations they've suggested.
Many companies are turning to firms like 401k
Forum to provide investment advice to their 401(k) plan participants. 401k
Forum, an independent investment advisor, takes over fiduciary responsibility for the plan
and provides participants with the answers they seek. It's a win-win situation –
participants get personalized investment advice and plan sponsors get the peace of mind of
knowing their 401(k) participants are in good hands.
If your company does not offer 401(k) investment advice, you could ask your human
resources or benefits representative to look into a service such as 401k Forum.
You can use the "e-mail your HR department" feature in our Visitor’s Center
to introduce the idea to them. In the meantime, you may want to consult with a financial
or tax advisor regarding your own situation.
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Can
I decide how to invest all of the money in my account, including employer contributions?
Possibly not. It depends on the rules of your particular plan. In some plans, participants
decide how their own contributions will be invested, but the company decides how to invest
the matching contributions. In other plans, employer matching contributions are invested
in the same proportions as the participant contributions. And in some plans, all matching
contributions are made in the form of company stock.
You should check with your company's HR or benefits representative regarding your specific
plan.
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How
often should I receive statements telling me how my investments are doing?
How frequently you receive account statements depends on your specific plan. By law, plans
must provide statements at least annually, but some plans issue statements as often as
quarterly, or on demand.
Check with your HR or benefits representative to find out how often your plan provides
statements. And remember, plan administrators usually provide a phone number you can call
between statements for information about your account.
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Is my
401(k) account protected against loss?
No. As with any investment, the money in your 401(k) account is subject to investment risk
(fluctuation in return). How much your 401(k) account is worth when you retire depends
entirely on the amount of your contributions and the performance of your investments. It
is possible to lose money if your investments do badly.
However, your money is protected in another way. Once your money is deposited in the
401(k) trust account by your employer, it is protected (by insurance) against any fraud,
embezzlement or other criminal activity.
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How
often can I change my investment allocations?
That depends on the rules of your company's plan. Employers who follow the Department of
Labor's voluntary guidelines must allow transfers among investments at least quarterly,
and more frequently if the plan offers a very volatile or high-risk investment (one that
could fluctuate greatly over a short period of time). Beyond the voluntary guidelines,
there is no legal requirement for how often plans must allow transfers.
How often your plan allows transfers has a lot to do with how frequently the plan's
record-keeper values the account (reconciles the various investment gains and losses).
Valuations can be performed annually, semi-annually, quarterly, monthly or even daily
– but you can only transact business as often as the account is valued.
While many plans still value accounts on a quarterly basis, the trend is turning toward
daily valuation. Most large to mid-sized plans are already valued daily.
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How can I learn more about the funds offered in my plan?
There are almost as many sources of information as there are funds!
First of all, you can request a fund fact sheet or prospectus, either from your plan
sponsor or directly from the company offering the fund.
There are also some great mutual fund information resources on the Internet like Microsoft
Investor, Individual Investor Online, Yahoo Finance and CBS MarketWatch, just to name a
few. You can also check the Internet or your local public library's reference shelves for
Morningstar Mutual Funds and Value Line's Mutual Fund Survey.
Financial magazines are another useful place to look for mutual fund information.
Publications such as Business Week, Kiplinger's, Worth, and Money are examples of
magazines that might prove helpful.
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