One of the biggest complaints you read about with employer retirement plans is that people are unhappy with fund options. This could be in the form of excessive fees to simply poor performance and diversified offerings. Fortunately many plans offer an alternative that can solve this problem. Unfortunately these options are usually not widely advertised and may actually be discouraged by the plan provider.
It is becoming more common for retirement plan sponsors to offer separate accounts within their retirement plan. These are often called optional or self-directed accounts. Typically this means the plan provider has an agreement with another institution that offers more comprehensive brokerage services that allows plan participants to open a separate account to invest part or all of their 401(k)/403(b) assets. So what this means is that you are able to continue your salary deferral and rather than only having the 10 or 20 investment choices typically available to you there are ultimately all of the great index and no-load funds you have grown to love now at your disposal.
Generally there is a small catch to these accounts. First, it isn’t likely to be free. Most of these accounts carry with them an annual fee to maintain the account. I have seen fees anywhere from $10 to $50 annually. This may not be much of a concern considering the money you are likely saving in fund expenses. The second catch is that these accounts typically do not allow for investments in every fund company or even individual stocks. While they do typically include all of the large fund companies and most funds you have heard of you want to be sure you check with the provider to ensure you have the investment choices you are interested in available to you.
If your employer’s plan doesn’t have the best options available it may be worthwhile to check with your plan provider to see if this is a feature available to you. What I wouldn’t do is simply stop by your HR department to check for this information. Generally the HR people only cover the vary basics regarding the plan unless you have a dedicated on-site representative for the plan. Check your statements or online for an 800 number and see if there is a way to talk to someone regarding your plan options specifically. Even if you know this was not offered when you were hired a few years back it is still worthing checking into. They may have added this benefit since then, yet it is unlikely they sent out a letter to everyone promoting the feature. At best it was in the fine print on one of your quarterly statements.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.