401(k) Plan Investments Overview

401(k) plan investment options must be carefully established and monitored. Investments can be pooled or participant-directed, appropriate personnel must be chosen to establish policies and selections, cost and performance must be monitored and communication with employees is required.

If participant-directed accounts are used, employees will control their investments and employers may avoid fiduciary responsibility for losses by offering participants a broad range of investments (at least three alternatives) and meeting other requirements.of the Department of Labor in accordance with Section 404(c) of ERISA. If pooled investments are used, employers must use extra care when selecting them, since earnings will be reflected in the accounts of the participants. Precautions should reduce employer's exposure to fiduciary liability and may involve the formation of an investment committee, appointment of a manager or adviser, the monitoring of earnings and other measures. Employers should prudently execute their fiduciary responsibilities since significant penalties can be imposed. Investment problems can lead to lawsuits by participants, difficulties with the Department of Labor or other severe consequences.

Investments with greater risks usually yield more substantial returns. Diversification and a long-term strategy can limit risks. Diversification is frequently achieved by using mutual funds. Although most 401(k) plans invest primarily in equities (i.e, stocks and bonds), other types of investment are available. An investment policy must be established (normally through an investment committee), personnel must be employed to effectuate this policy and others must be employed to monitor its effectiveness.

Employers can reduce 401(k) investment costs by several techniques, including eliminating unnecessary expenses, negotiating with the organizations currently providing services, switching the management function to another service provider or having investment costs paid directly by employees.

Investment information should be provided to 401(k) participants, but need not be as extensive when investments are pooled as when they are participant-directed. The employer should provide information and education, but should not offer advice. Investment education meetings, financial counseling and use of the Internet should be considered.

401(k) Plan Further Assistance

Please complete our short form listing your questions or problems. We will reply promptly to concerns of employers and their representatives. Or call us at 718-793-9885. Our web site home page contains additional useful information about 401(k) plans.


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