Just about now, 401(k) participants are starting to open their year-end statements. Some because they’re just starting to receive them, others because they’ve decided it’s now time to confront the harsh reality of substantially diminished account balances.
That is, if they haven’t already gone on-line (how many times?) the last quarter. But, of course, the piece of paper in their hands makes it official.
And so what you may start to see again – and we already have – is 401(k) participants saying, “hey, I can do a better job than this” and wanting to manage their accounts themselves in what the retirement industry calls “self-directed brokerage accounts” or SDBAs. These individual accounts are established and maintained either on a stand-alone basis or through the 401(k) provider handling the menu of funds.
SDBAs were popular back in the days of irrational exuberance when 401(k) participants wanted to go beyond the limitations of the fund menu. The driving force was usually a business owner or important Highly Compensated Employee with a large account balance. And so while there are many reasons not to have SDBAs as part of a 401(k) plan, those participants with clout may cause is to happen in today’s investment climate.
In that case, it’s incumbent on the plan sponsor to structure a program that deals with such concerns as
- Fiduciary liability for improper investment transactions
- Unrelated business taxable income (UBTI)
- Administrative and investment expenses
All of which can be dealt with proper planning and execution. The starting point for which is the Investment Policy Statement. You do have one, don’t you?
Photo above, deja vu, by pngn via Flickr.