So How Do We Shop for a 401k Plan?

Whether we’re in the market for something to serve merely as a basic means of transportation or something more exotic like an iconic ’64 Ford Mustang to relive our twenties, most of us do some amount of research before buying a car. There are plenty of options that meet our desires, needs, or abilities. Even a modest amount of research will prepare us well to identify the brand and dealership from which to claim our prize. Sometimes, we even arm ourselves with a Kelly Blue Book or Carfax report in advance of the inevitable price negotiation war.

Most business owners searching for a 401k plan for their employees spend very little time researching for an optimal solution.  Just as we would not walk into a Toyota dealership to buy a Benz, a knowledgeable investor would not walk into a Fidelity, a John Hancock, or any of the major brand name fund superstores that really just specialize in US large-cap equity funds and expect to walk out with a high-performance small-cap international fund.

Moreover, if you walked into a Ford dealership and inquired about all-electric cars, the salesperson would try to sell you a Ford-branded model regardless of how good it actually is.  As it is their product, they would naturally claim their car is best.  However, what if Consumer Reports, through their research and comparison tests, concluded that Tesla, not Ford, makes the best electric car? Shouldn’t we be flocking to a Tesla dealership, with a Carfax report in hand, of course?

This car buying analogy simply points out a very important and overlooked tendency even among the smartest business owners.  They are so busy running their successful businesses, not enough time is dedicated to preparing for something arguably far more important and costlier than buying a car.  They often believe their 401k plan research starts at a Fidelity or John Hancock dealership, neglecting readily available market intelligence produced by Consumer Reports and 3(38) investment advisers, whose job is to help plan sponsors design and manage 401k plans. Much like Carfax, a 3(38) adviser produces a report that can arm sponsors with intelligence essential to making sound and prudent decisions for negotiation with a fund dealership.

In fact, the use of a 3(38) investment adviser is supported by the IRS. Plan sponsors are permitted to transfer much of their fiduciary risk, both personal and business, to a 3(38) adviser because the government recognizes the use of a 3(38) investment adviser will result in a stronger overall retirement outlook for Americans.

If all this sounds very foreign to you, it’s because this topic is not one that fuels passion or delivers immediate tangible benefits. The benefits are often realized too far in the future to drive urgency.  Hence, let this be a reminder of the merits of diligent preparation and use of all available resources to achieve success.  Determine the plan’s desired level of service, optimal price range, and whether you are shopping for a Benz or a Toyota.  Most importantly, have your Carfax report handy and when you are ready to shop, arm yourself with a 3(38) investment manager.

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