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A recent article by Chris Carosa asked the question, “Do 401k plan sponsors give too much rope?” The article focused on 401(k) plans with self-directed investing and the liability a plan sponsor/fiduciary might bear for the plan’s investment choices.
I agree with many of Mr. Carosa’s points. Plan sponsors certainly do have a duty to offer appropriate investment choices to their employees. He uses the analogy that the bartender should not give the keys to a drunken patron. While I think we’re all on board with that, I think there’s a bigger question to be asked: when considering self directed investing in a 401(k) plan, what is the appropriate role of paternalism for plan sponsors to have?
The issue continues to draw attention because of the way government regulators treat individual investors. Sometimes, investors are considered smart and empowered. Other times, they are likened to children who can’t be trusted. This attitude seems to trickle down throughout the 401(k) industry.
I believe that if an employee wants a self-directed brokerage option, let them have it.
I’m not an advocate for uninformed participants using self directed investing in a 401(k) plan. I’ve blogged about how and when to offer employees self-directed investments before. I believe that plan sponsors need to begin with an intelligently designed plan and well thought out investment options. I believe plan sponsors need to fully disclose all information about the plan. But that’s where I believe the plan sponsor’s responsibility ends. If employees want to opt in or out - let them.
Life is full of choices. We don’t always choose wisely. That’s the danger of freedom, but that’s also a risk each individual should be allowed to take when deciding how to invest. As a plan sponsor, we give our best, but the employee makes the final call.
Let’s continue the conversation. Drop your comments in the box below and I’ll respond as quickly as I can!
