This article is for the 401k plan participant trying to understand their 401k retirement plan and what they should do with it. If you think that your 401k plan is more confusing than your company’s health care benefits, you are not alone.
How do I get started with this benefit?
Typically, you must choose to participate by enrolling in the plan. However, it is becoming more common for companies to do what is called auto-enrolling. If you plan has been set-up this way, then you must choose to opt out if you do not want to participate. Otherwise, you will be enrolled in the plan and you may even have a set percentage of your wages removed from your paycheck and contributed to your account in the plan.
Who is responsible for choosing my investments?
The simple answer is that the employee chooses from the investments offered in the plan. The investments, typically a menu of mutual funds, were preselected by your employer and typically recommended by an investment company called the plan provider. If your company plan offers a self directed brokerage account as well as the preselected menu of mutual funds, the core lineup of investments are generally referred to as the main menu of investment options.
Will my employer choose my investments for me?
The answer here depends on the design of your plan. The auto-enrollment feature mentioned before may also have another automatic feature called the default investment. In other words, unless the employee makes a selection from the main menu of investment options, the default investment is typically into a Target Date Fund. If there is no such feature in your plan, the default will be into a money market account until you choose otherwise.
I know nothing about investments. Who in my company can help?
Unfortunately, no one in your company, officially, can work with you to pick your investments. In all likelihood, you will be directed to any number of educational resources that the plan provider has made available for your use. Someone in human resources may help you understand how to use these tools; but, they will not tell you what investments to buy.
These are just some of the more common questions about 401k retirement plans. Given that the typical employee has little or no education about personal finance, investments or retirement planning it is no wonder that employees’ crave 401k investment advice.
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