Attracting top talent isn’t just about offering the most money. In an era where young people are more and more insecure about their retirement, it’s important to offer long-term forms of compensation. The gold standard in 2014 is the employer-matched 401(k).
As in every aspect of business, negotiation is key. However, you can’t negotiate if you don’t know the lay of the land. While you might be a great employee, that doesn’t mean you know how many beans make five when it comes to assessing the retirement plan offered by your employer. Here are the key questions to make sure your employee 401(k) program is competitive.
How high are the fees?
This is ground zero when it comes to evaluating a 401(k): How much is it going to cost you? And the answer is pretty straightforward: some plans cost more than others because of the fees on the funds they contain. Spend some time digging around finding out the fees on the investments. Generally, because of contribution matching, investing in a 401(k) is often a good investment even if fees are high, but understanding the fees can help you assess whether it makes sense to invest beyond the level of employer matching or not, if fees are high (as of 2014 high fees are over 0.30% but ideally less) you might want to consider an IRA for any additional funds where you can choose a broader set of funds with lower costs.
Does this plan offer the ability to diversify investments?
Any decent retirement plan needs to consist of diversified investments. Ideally, you want a plan allowing investment in all the core asset classes. The portfolio should include stocks (both domestic and international) and diversified bonds exposure. Ideally the option to obtain REIT exposure as well as tilting to value and small cap stocks can be helpful too. This may help you make a better risk and return trade off, and hopefully insulate you from the vagaries of national and international markets. If you’re 401(k) lacks some critical asset classes, then you can use a tool such as FutureAdvisor to balance your overall investments, using other accounts to compensate for what’s lacking in your 401(k) options.
What additional perks are on offer?
It’s a catchall, sure, but there are a boatload of other aspects that can include your 401(k). These include:
- Pre- and post-tax options, which allow for tax diversification in your retirement portfolio
- Regular review of investment options, which make for a fluid and flexible retirement plan, responsive to ongoing market changes
- Investment counseling whether online or in person, employer sponsored resources can be an effective way to learn more about your financial situation
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.