Why Your 401(k) Changed its Funds
Changes occur in 401(k) plans more than you might think. When a change happens it is supposed to reflect the best interest of the participants in the plan. There are several different types of changes that can be made, including: new share classes, elimination or addition of funds or switching to institutional funds. If a change is planned, your employer will send you a notification well in advance with the information you’ll need to know regarding both what the change is and when it will occur. Below, you’ll find a brief description of the changes mentioned above.
Share class changes – If a new share class is being offered it is usually because an employer is trying to offer funds with lower expense ratios.
Fund eliminations and additions – A fund is usually eliminated because it has had poor performance and can be replaced by a better performing fund in the same asset class. Your plan can also add new funds to make more asset classes available (this will normally give you the opportunity to increase your diversification).
One of the most confusing changes for the average investor and one we get the most questions on is when a 401(k) plan changes its entire fund line-up to institutional funds. An institutional fund is a mutual fund that is offered and created specifically for a plan. The only investors in these funds are employees of a particular company. These funds are not publicly traded and do not have ticker symbols. Therefore, the only information available about these funds is through your 401(k) provider. The benefit of institutional funds is that you typically have lower fees than the average retail fund. This is quickly becoming a popular trend among large employers as the size of their plan grows.
If your plan is making changes it generally means that an employer is trying to improve their retirement plan. If you are a Smart401k client, all you need to do is send in the new list of available funds and we’ll review your new choices and update your recommendation. If you want to get started with Smart401k please click here.
As always please feel free to contact us with any questions at 877.627.8401 or info@smart401k.com
Jessica Slaters, Investment Advisor
