Who Stewards Your 401(k) Plan?
It takes a white-collar village to run your 401(k) plan.
Many 401(k) participants, even those with a relatively sophisticated understanding of their investments, know of only two parties engaged in their plan: the employer who sponsors the plan and the mutual fund firms in which they invest their money. However, as is usually the case when trillions of dollars are involved, a lot of other parties have a hand in the process.
Since the creation of the first 401(k) in 1981, the cottage industry of 401(k) servicing businesses has mushroomed -- investment consultants arose to advise sponsors on which funds to choose, attorneys and auditors to ensure the plan meets compliance standards, custodians to execute the massive trades within 401(k) plans and so on. Because retirement plans are a complex minefield of financial and legal issues, the various parties serve essential roles.
It's also essential for individuals to have an understanding of the various groups -- for they largely define how your retirement will take shape. "Investors need to understand: Who are all the chefs in the kitchen?" said Steve Lansing, founder of Sentinel Fiduciary Services, an Orlando, Fla.-based fee-only retirement plan consultant. "Who are all the parties financially benefiting from the plan?" Meanwhile, investors need to know who pays for their services, how much they get paid and if they have any other side businesses with other 401(k) service providers (such as the fund companies, say) that potentially cloud their partiality in assisting you.There are 432,000 401(k) plans in America, and no two are exactly alike -- so coming up with a one-size-fits-all chart of the 401(k) village isn't possible. However, the following list details some of the likely parties engaged in stewarding your 401(k), what function they serve and the questions you need to ask to determine if they are best serving your exclusive interests. Sometimes, one entity will serve several of the functions.
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