At Kampstra Wealth Management one of our specialties is working with business owners, CFO’s, HR staff and other company stakeholders to craft retirement plan benefits that create successful outcomes for all. To reach retirement on your own terms, we have to have success on multiple fronts; investment performance, plan design and employee financial wellness to name a few. In this article we will be diving into how Kampstra Wealth Management tailors our 401(k) investment menus for workplace retirement plans.
Creating a 401(k) investment menu is all about a process, one which is constantly under the Department of Labor’s microscope. While crafting our lineups, we are always striving to act in the best interest of our participants and their beneficiaries. With this in mind we often operate in a 3(38) investment advisory capacity, meaning we are legally responsible for the selection and continual monitoring of the funds. An investment menu typically consists of four pieces: a target date series, a balanced allocation fund, equity funds and bond funds, and a stable value fund.
With the majority of money in workplace retirement plans being allocated to Target Date Funds (TDF), we like to go through an analysis with each plan to evaluate the risk level, savings amount, investment knowledge, potential supplements to the retirement plan and what a participant does with their money at retirement. With this many data points we usually find that not all participants are the same. However, we try to find a TDF whose glidepath (how the fund changes as it nears or passes through the target retirement date) most closely aligns with the participants’ risk tolerance. We take pride in diving under the hood to understand how the TDF changes over the course of a 30-40 year working career.
For participants who don’t want a fund that gets more conservative the closer they get to retirement like the TDF’s, we like to offer a balanced asset allocation fund. This fund is well diversified, investing in U.S. and international stocks and bonds. Typically a balanced fund will invest anywhere between 50 and 70 percent of the fund in stocks and maintain this overall allocation.
For the equity and bond funds, we don’t want to overwhelm employees with too many options, but do want to provide enough options in case they like to create their own portfolios. We like to offer both active and passive U.S. equity and international funds. Similarly, on the bond side, we like to have an active core or core plus bond fund and multisector bond fund, in addition to a passive bond fund that follows the U.S. Aggregate Bond Index.
Finally, for participants who are risk averse, we use a stable value fund as our cash-like option. Stable Value Funds are only available to qualified workplace retirement plans. A stable value fund’s goal is capital preservation, meaning if the fund is purchased for $1, appreciation isn’t the goal, but the fund does aim to produce a yield, often higher than what a participant could earn through a savings account or money market fund.
Working with a 401(k) specialist can help you craft an investment menu that optimizes outcomes for both you and your employees. Contact Kampstra Wealth Management today to learn more about our 401(k) investment process at firstname.lastname@example.org or by calling 717-334-0097.