Diversify Options

Sounds simple, but…does your plan offer diversified options?

A retirement plan must exist and be managed solely in the interest of its participants and beneficiaries. Linked to this idea is a fiduciary—a term that may be new to you.

A fiduciary is someone who assumes responsibility to act with loyalty and prudence on behalf of another person. For example, a physician as fiduciary is required by law to provide care in the best interest of the patient. The relationship between doctor-patient is built upon trust and confidence.

In retirement planning, federal and state law requires the plan sponsor (that's you) to act as fiduciary. This means you need to make prudent investment decisions that benefit your participants. The plan you offer must be diversified—that is, it must include different and alternate investment options. When you diversify investments, you maximize investment potential and minimize risk of large loss—a very good thing to do.

One of the most common problems with small business 401(k) plans is inadequate diversification. Often, plan sponsors believe that their plan is diversified because it offers at least five mutual funds. However, those five mutual funds may invest in the same large-cap investments—an example of fudiciary irresponsibility and financial imprudence.